2G Spectrum - What went wrong?

2010 has not been a great year from the governance perspective. Scams of various proportions have hit the headlines so prominently that it has tarnished India’s image as a leading developing economy which is on the radar of bulk of investors abroad. In a country with a population of more than a billion and which adds millions of subscribers to its telecom market every month, to be rocked by a scam of this proportion was a rude shock. The stakes involved a loss of close to Rs 1.76 lakh crore to the exchequer which is by and large among the biggest ever scams to have scuttled the India growth story. While reams of paper have been devoted to fixing the blame we believe in providing our readers with a perspective of the real issues on hand.

Issue And The CAG Report

In January 2008, the Department of Telecommunication (DoT), function-ing under A Raja, the former minister for communications and information technology, issued 122 new licenses for unified access services. All these licenses were issued in a single day at seemingly throwaway prices. Thus, doubts were raised about the transpar-ency in the allocation process and the failure in the maximisation of revenue from the allocation of the spectrum, which is a national asset. The points raised above were later substantiated when Swan, which was awarded the license for Rs 1,537 crore, sold its 45 per cent stake to Etisalat for Rs 4,200 crore. Similarly, Unitech Wireless received the license for Rs 1,661 crore and later sold its 60 per cent stake for Rs 6,200 crore to Talenor.
Upon the revelation of all these reports, the Comptroller and Auditor General of India (CAG) was asked to look into the matter. The CAG came out with a report that was finally tabled in the parliament on November 16, 2010 and revealed some shocking facts:

• In August 2003, the Telecom Regulatory Authority of India (TRAI) had submitted a report recommending a road map for the allocation of licenses. This report formed the basis for the UAS policy that was approved by the Council of Ministers in October 2003. The implementation of the UASL regime was to be carried out in two phases. However, an audit exami-nation reveals that the Department of Telecom did not implement the licensing regime as approved by the Cabinet and implemented only the first phase of the policy, overlooking the second phase.

• The CAG report also suggested that the Telecom Commission, which includes part-time members from the Ministry of Finance, industry, IT, and the Planning Commission, was not even consulted at the time of the grant of the 122 UAS licens-es in 2008.
• It has been revealed during the course of the audit that the Ministry of Finance, in November 2007, had questioned the sanctity of con-tinuing with the prices determined way back in 2001 without any indexation or current valuation. The ministry had sought a review of the matter that was overlooked by the DoT.

• In November 2007, the prime minister wrote to the Ministry of Communication and IT that in the backdrop of the inadequate spectrum and the unprecedented number of applications received for fresh licenses, the spectrum pricing needs to be reconsidered.The MoC&IT wrote back saying it would be unfair, discriminatory, arbitrary, and capricious to auction the spectrum to new applicants as it will not give them a level play-ing field.[PAGE BREAK]
• The TRAI report of August 2007 had recommended ‘no cap’ on the number of licenses in any ser-vice area. Despite this recommen-dation, the DoT issued a press release on September 24, 2007 stating that the applications for the issue of licenses would be accepted only up to October 1, 2007. The DoT further advanced this date to restrict the issuance of Letters of Intent (LoIs) only to applications received up to September 25, 2007. This was ostensibly to avoid legal implications in view of the shortage of the spectrum for GSM services.

• The first come first served (FCFS) policy earlier internally adopted in DoT for the allocation of the spectrum was then extended for the issue of new UAS licenses. In a communication dated November 2, 2007, the MoC&IT had even confirmed to the prime minister that the processing of the applications was to be on a FCFS basis. However, the DoT deviated from the FCFS policy in letter and spirit.

• 85 out of the 122 licenses issued in 2008 were found to be issued to companies which did not satisfy the basic eligibility conditions set by the DoT and had suppressed facts while disclosing information.

• On the values determined through various indicators, the presumptive value of 2G spectrum on account of the grant of 157 licenses in different circles during 2007-08 would be in the range of approximately Rs 58,000 crore to Rs 1,52,038 crore.

• The spectrum was allotted by DoT to the existing operators beyond the contracted limits without imposing any upfront charge for such an allotment. The value of the spectrum held by 13 operators for 51 circles based on the 2001 rates worked out to Rs 2,561 crore. Based on the above indicators, the value would be in the range of Rs 12,000 crore and Rs 37,000 crore.These were the observations of the CAG in its report submitted before the parliament. From what is apparently obvious, there definitely seems to be a deviation from the clearly thought out policies laid out in the matter. Even a very commonsense approach to pricing would have suggested a re-evaluation of the prices at which the spectrum should have been allotted in 2008 since the economic dynamics of 2001 would certainly be very different to the ones in 2008.

Conflicting Views

Cabinet Minister Kapil Sibal, who took over the reins of the Ministry of Telecom, recently condemned the CAG report saying that there is no loss to the exchequer. According to Sibal, the CAG had arrived at the figure of the loss to the exchequer on the basis of the prices fetched in the 3G auction held in the middle of last year. The loss as calculated by the CAG failed to factor in the lower value of money in 2008 vis-a-vis 2010 and the two auctions cannot be compared for the very simple reason that both involved dif-ferent frequencies, amount of airwaves, and the efficiency of these airwaves. This, according to him, brought the loss to zero against the huge figure put forth by the CAG.

An official from the Ministry of Communication and IT, on condition of anonymity, says, “It was his personal view. Also, people must understand that the CAG is not a judicial author-ity. Its findings can also go wrong. It has not been substantiated till now that the amount mentioned in the report is correct. It is an estimated figure.”[PAGE BREAK]

But what about the other findings of the CAG report? Nobody from the government bothered to clear these points. A prominent political analyst says, “The job for the CAG was to investigate the matter and submit the report, which it has done. Now, the matter is to be decided by the Public Accounts Committee (PAC), which will examine it and find out if the CAG has arrived at the right conclu-sions. Only after that will any action be taken.”

Status Of Investigations

The CBI started probing the irregularities in October 2009 and subsequently registered the first ‘FIR’. However, the concerned minister was questioned only in December 2010. The progress in the case, however little, was only due to the interference of the Supreme Court which asked some pointed questions to the government agencies. Also, it is difficult for the government to justify the appointment of Chief Vigilance Commissioner P J Thomas in supervising the case, considering the very fact that Thomas himself was the telecom secretary at the relevant point of time.

So who is responsible?

It’s a controversy involving several people and government agencies and cannot be dumped on the doorstep of one or two. While saving his skin, the controversial telecom minister, A Raja, who resigned later, had earlier remarked that he had sought guidance and permission from the prime minister at every stage. Now in the center of the controversy is the prime minister as Raja went on record to state that he had put the PMO in the loop at every stage during the spectrum allocation. The communication ministry official defends the ministry saying that people cannot blame the entire system for mistakes which have been caused by a few individuals. However, she agrees that the image of the regulatory bodies and the regulatory system has definitely taken a beating.

Unanswered Questions

Even if one assumes that there was no loss to the exchequer in monetary terms, what happens to the other issues that have been raised by the CAG in its report? One agrees that the figures stated by CAG are notional and not actual and that 2G and 3G are both different things. It is also true that A Raja was following the policies that were framed by the NDA. However, there remain some unanswered questions. If everything has been done as per the law then why did A Raja resign? If the government is clear on its part then why did the government not agree to the demand of a JPC? Why has the UPA II taken so much time in ordering a probe? Even if the amount estimated by the CAG is not correct, it has been established that there has been a loss to the exchequer. So why is the government not accepting it?

Most importantly, how can you apply the policies that were formed in 2001 to the current environment when things have changed so drasti-cally? One moot point: Was it ethically right on Sibal’s part to condemn the reports of a constitutional body like the Comptroller and Auditor General of India? In fact, the Supreme Court recently pulled up Telecom Minister Kapil Sibal for making statements that undermine the CAG report on the 2G scam and also asked him to behave with some sense of responsibility while the probe was on. Not only this, the Bench has also issued notices to the Central Government and 11 private telecom companies including Etisalat, Uninor, Loop Telecom, Videocon, S-Tel, Allianz Infra, Idea Cellular, Tata Teleservices, Sistema Shyam Teleservices, Dishnet Wireless and Vodafone-Essar.[PAGE BREAK]
Meanwhile, the probe is on and the CBI has been raiding the concerned persons but only after giving them ample time which could have helped them in destroying the evidence. The most prudent way that the government can handle this mess is probably either by scrapping the licenses so issued or by asking the concerned companies to do good the losses suffered by the exchequer.