GAPS IN POLICY IMPLEMENTATION
CAG report alleged that Department of Telecom (DoT) did not implement the licensing regime as approved by the Cabinet. “This appears to have become the underlying factor, quite erroneously, to value the spectrum in 2008 at 2001 prices. An important objective of this policy decision to delink the prices of spectrum from the issue of licence and devise an efficient allocation formula for spectrum along with an appropriate price, remained unachieved,” the report said.
It said DoT decided not to associate the Ministry of Finance on pricing issue.
“As a consequence of such lacunae in implementation of the policy laid down by the Council of Ministers in 2003, the issuance of licences in 2008 along with allocation of spectrum has been done by DoT at prices determined in 2001, which were based on a totally nascent market despite the sector witnessing substantial transformation and manifold growth. The issue was never placed before Cabinet for a review,” the report said.
IGNORING PM’s ADVICE
CAG alleged that then Telecom Minister A Raja ignored PM Manmohan Singh’s advice in November 2007 to reconsider spectrum pricing through auction. It said that Raja “replied that the issue of auction of spectrum was considered by TRAI and the Telecom Commission and it was not recommended by them as the existing licence holders had already got spectrum upto 10 mega hertz per circle without any spectrum charge…. (Raja) informed that his Ministry has come to the conclusion that it will be unfair, discriminatory, arbitrary and capricious to auction spectrum to new applicants as it will not give them a level playing field.”
CHANGES IN CUT-OFF DATE
“The TRAI report of August 2007 had recommended ‘no cap’ on the number of licences in any service area. Despite this recommendation of TRAI, DoT issued a Press Release on 24th September 2007 stating that applications for issue of licences would be accepted only upto 1.10.2007. To further compound the earlier decision, of restricting consideration of applications received up to 1.10.2007, the DoT advanced this date to restrict issuance of Letters of Intent (LoIs) only to applications received up to 25.09.2007. This was ostensibly to avoid legal implications in view of the shortage of spectrum for GSM services,” CAG report said.
The CAG audit found that DoT deviated from the first-come-first-served (FCFS) policy. “The applications submitted between March 2006 and 25th September 2007 were issued the LoIs simultaneously on a single day, viz. 10th January 2008. A notice was issued through a press release giving less than an hour to collect the same. This decision to issue LoIs simultaneously to all applicants was taken at the level of the Minister. As per the FCFS policy being followed those who were issued LoIs were given 15 days to fulfill the conditions…. By changing FCFS criteria, some licensees, who could proactively anticipate such procedural changes…could avail the benefit of first right to allocation of spectrum, having jumped the queue,” the report said.
COMPANIES ISSUED LICENCES
“Eighty-five 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, disclosed incomplete information and submitted fictitious documents for getting UAS licenses and thereby access to spectrum,” the report said.
CAG adopted various methods for arriving at presumptive loss since actual loss, it said, could not be calculated. According to various methods, the presumptive loss in spectrum allocation was in the range of Rs 58,000 crore and Rs 1.76 lakh crore.
The ‘loss’ and the ‘cost’
What CAG report said
CAG adopted various methods for arriving at what it called “presumptive loss” in the 2G spectrum allocation case. It said the actual loss was not possible to calculate. According to various methods, the presumptive loss in the spectrum allocation was in the range of Rs 58,000 crore and Rs 1.76 lakh crore.
* Based on foreign investments received by Swan Telecom and Unitech after they bagged licences, the report calculated a loss of around Rs 58,000 crore to Rs 68,000 crore.
“Many of the new UAS licensees of 2008 have been able to attract substantial amount of Foreign Direct Investment (FDI). Value of a new company with no experience in the telecom sector can primarily be taken as that of the license and access to spectrum… Based on this indicator, value of a pan India license works out between Rs 7,758 crore and Rs 9,100 crore as against Rs 1,658 crore priced by DoT,” the CAG report said.
* Based on prices offered by S Tel at Rs 13,752 crore each for new UAS license and Dual Technology license, CAG calculated loss of Rs 67,364 crore. In addition, it calculated the price of extra spectrum beyond contracted quantity of 6.2 Mhz.
* The figure of Rs 1.76 lakh crore was based on auction prices of 3G spectrum in addition to prices for dual technology and additional spectrum granted to operators.
“If price is calculated at 3G rates which can also be taken as one of the indicators for assessing the value of 2G spectrum allocated to UAS licensees in 2008, the value works out to Rs 1,11,512 crore against Rs 9,014 crore realised by DoT,” the CAG said. To this it further added prices for dual technology and extra spectrum to reach the figure of Rs 1.76 lakh crore.
What SC said in Feb 2012
“The material produced before the Court shows that the Minister of C&IT wanted to favour some companies at the cost of the Public Exchequer… The manner in which the exercise for grant of LoIs (letters of intent) to the applicants was conducted on 10.1.2008 leaves no room for doubt that everything was stage managed to favour those who were able to know in advance change in the implementation of the first-come-first served principle.”
What JPC report said
“Surprisingly the TRAI recommendations were cherry-picked and were not considered in entirety while referring to them by the audit for trying to establish that 2G and 3G prices are comparable and calculating presumptive loss for spectrum on the basis of revenue realised through 3G auction. One fails to understand how the TRAI recommendation of 11 May, 2010 quoted by the audit could be made applicable in retrospect for spectrum allocated in 2008. Additionally, 3G spectrum was auctioned for the first time in the country in early 2010. How could the revenue realised in 2010 for 3G be used for calculating the loss on account of 2G spectrum allocated as far back as in 2008 where the demand-supply position was also very different is something that needs proper justification.”