2G Spectrum Scam

Governance and Public Policy - 2G Spectrum Scam

Governance and Public
Policy
2G Spectrum Scam

Date: 29/04/2012

Team Members:
Sahiba Sanan (HRLP029)
Monika Sahni (HRLP022)
Raman Girdhar (HRLP033)
Pratibha Sangwan (HRLP012)
Pradeepan N (MLP020)
Prasoon Malviya (MLP017)
Anurag Kanoongo (MLP015)

►This paper is a brief representation of facts and analysis
of 2G spectrum scam

School Of Inspired Leadership 1

2G Spectrum Scam

Contents

Contents ......................................................................................................................... 2
Executive Summary ...................................................................................................... 3
1. Introduction .............................................................................................................. 4
1.1 What is a spectrum? Why is it a national scarce resource? ...................................................... 4
1.2 What is 2G Spectrum and 3G?.................................................................................................. 4

2. Background .............................................................................................................. 5
3. What is 2G Spectrum Scam? .................................................................................. 6
3.1 Role of the former telecom minister A Raja ............................................................................... 6
3.2 Relation with Radia tapes .......................................................................................................... 7
3.3 Role of Finance Ministry ............................................................................................................ 7
3.4 Role of Prime Minister ............................................................................................................... 7

4. Role of Regulatory and Other Bodies .................................................................... 8
4.1 Role of CVC ............................................................................................................................... 8
4.2 Role of CBI/ ED ......................................................................................................................... 8
4.3 Role of CAG............................................................................................................................... 8

5. Current status and Proceedings............................................................................. 9
5.1 Companies which are being investigated .................................................................................. 9
5.2 What did Supreme Court said? ................................................................................................. 9
5.3 What has Government done so far? ......................................................................................... 9
5.4 Arrests made in this scam ....................................................................................................... 10
5.5 Latest proceedings on 2G Scam ............................................................................................. 10

6. Analysis .................................................................................................................. 11
7. References ............................................................................................................. 12

Governance and Public Policy 2

2G Spectrum Scam

Executive Summary

From the time allegations of misappropriation during the bidding for allocation of 2G
spectrum surfaced, till Telecom Minister A Raja's ouster, high drama charged both
politics and business world.
2G spectrum scandal involved officials in the government of India illegally undercharging
mobile telephony companies for frequency allocation licenses, which they would use to
create 2G subscriptions for cell phones.
The shortfall between the money collected and the money which the law mandated to be
collected is estimated to be 176,645 crore (US$35.24 billion) as valued by Comptroller
and Auditor General of India, however the exact loss is still disputed.
This paper is a case study to the subject – 2G Spectrum Scam. The paper starts with a
brief introduction to basic term like spectrum, 2G. It then sets the context of the case with
discussing background. We then discuss the core of matter, defining the scam, role
played by various regulatory bodies and the current state of affairs along with latest
proceedings. Finally, we reflect upon the case with a brief analysis.


2G Spectrum Scam

1. Introduction

1.1 What is a spectrum? Why is it a national scarce resource?

Spectrum is airwaves which are used in case of mobile and wireless communications. Each
telecom operator is assigned a set of limited frequencies of airwaves which is licensed by
the government. It is allocated in Mega Hertz (MHz) in telecom licenses.
Different frequencies limited in number have different characteristics which are used for
different purposes. The international telecom organizations have specified certain
frequency bands for mobile services. Millions of calls happening every second
simultaneously have to be assigned different frequencies (which are limited) for operation.
This is why it is a scarce resource.

1.2 What is 2G Spectrum and 3G?

2G (or 2-G) is short for second-generation wireless telephone technology. It is the 2nd
Generation of mobile phone services. Next phase of mobile services is 3G, or 3rd
Generation. The only differences between the two spectrum is about the speed which is
relatively more in case of 3G spectrum as it is of the latest technology.


2G Spectrum Scam

2. Background

In India there are 22 Telecom circles and metros (Each state being a circle like Bihar, U.P,
Mumbai, Tamil Nadu, New Delhi etc.). For each Circle or metro there is a separate license
issued. For each license a separate application needs to be submitted. A company is said
to have a Pan India License in case it has telecom license for all the 22 Telecom circles or
metros and the value for the Pan India License was Rs 1658 Cr which was used as a
reference rate for issuing telecom License in future at First Come First Serve (FCFS) basis,
which became the matter of scam.
The FCFS policy was used at the time when the applications for receiving licenses were
very limited in number but gradually there was an increase in the application number from
51 in 2003 to 575 in 2007. Therefore with so many applications government should have
adopted the auction route for issuing telecom license rather than using FCFS policy.


2G Spectrum Scam

3. What is 2G Spectrum Scam?

The government awarded 122 telecom licenses for 2G spectrum in January 2008 at 2001
rates (Rs 1,685 crore) ignoring the current market value of the spectrum which was
potentially high. Due to limited availability for civil use and increased telecom operators,
telecom firms were willing to pay a price of around Rs.11,000crore for acquiring pan India
telecom licenses. This was very evident when Vodafone bought a 67% stake from Hutch for
a price of Rs.75,000. Even if we consider the spectrum cost to be 15%, it would amount to
Rs.11,250 crore.
As of October 2007, there were 575 applications for telecom license. In spite of increase in
the market value to Rs.11,000 crore, the then Telecom minister A.Raja decided to sell in for
the same price as of 2001. In this mean time, many organizations opened fake new firms
for getting licenses, and these include Swan Telecom, Loop Telecom, Datacom solutions
pvt. Ltd, etc.
A total of 18 companies were issued 122 licenses by DoT on First Come First Served
(FCFS) basis. A lot of them in turn sold their licenses foreign players for a much higher rate.
 Swan got license for 1,537 crore (US$306.63 million) and then it sold 45% stake to
UAE based company Etisalat for 4,200 crore (US$837.9 million).
 Unitech Wireless, a subsidiary of the Unitech Group, got license for
1,661 crore (US$331.37 million) and later sold 60% stake for 6,200 crore (US$1.24
billion) to Norway based company Telenor.
All these licenses were then later cancelled by Supreme court.

3.1 Role of the former telecom minister A Raja

All those telecom operators are close aide of either A.Raja or congress party. Through their
connections they all are informed to apply before October 25th. On October 25th, A.Raja
issued a press release dated 24/09/2007 that the last date for applying for new license was
October 1st 2007. In the 5 days between 25th-1st, there have been 343 new applications
requesting licenses. A.Raja never expected this much new applications within that time. So,
he asked DoT officials to change the policy, but they opposed. So, he waited for the
retirement of two senior officials of DoT. Then he brought his aide Mr.Siddhartha Behura
as secretary of DoT. Then he issued a notice on January 10th 2008 that license will be
given only to those who applied before 25/09/2007. The same day noon he issued a the
shortlist of those companies which were shortlisted and asked those companies to come
between 3:30 P.M.-4:30 P.M. that day itself with a Letter Of Intent(LOI). All those


2G Spectrum Scam

companies who are in the friend list of A.Raja prepared all their demand drafts for
Rs.1685cr and other guarantees a day before, since they already know about these
announcements.

3.2 Relation with Radia tapes

Nira Radia was also another big name in 2G spectrum scam. Nira Radia runs public
relation and consultancy companies. Radia have very close relationship with A. Raja and
with that time Chief Minister Mr. M. Karunanidhi. She has influenced 2G spectrum license
decisions by lobbying for Tata, unitech, reliance and bharti.

3.3 Role of Finance Ministry

Finance Ministry also played major role. Entry fees for 2G-spectrum licenses deposited into
the account of Finance Ministry by DOT. Earlier in Nov 2007 Finance Ministry showed
objection over the license process by writing a letter to DOT but latter in Jan 2008 they
wrote another letter to A. Raja that process is accepted this time but next time licenses
should be auctioned. Then Mr. A. Raja converted (LOI) letter of intents into licenses.

3.4 Role of Prime Minister

On the same lines, Prime Minister’s office is also involved in this scam. Prime Minister’s
office objected in Nov 2007 over the process and suggested to go by auction but by Jan
2008 they also took u turn. Mr. A. Raja sent three letters to Prime Minister explaining him
how to process application and insisting to follow FCSC policy and allocate licenses @
1658 crore(approx).


2G Spectrum Scam

4. Role of Regulatory and Other Bodies

4.1 Role of CVC

On 4th May 2009, an NGO named Telecom Watchdog filed a complaint to the Central
Vigilance Commission (CVC) on the illegalities in the spectrum allocation to Loop Telecom.
On 19 May 2009, another complaint was filed to the CVC by Arun Agarwal, highlighting
grant of spectrum to Swan Telecom at throwaway prices. The case was initially referred by
the CVC to the CBI for further investigation on 12.10.2009 as the DoT officers were not
forthcoming with the right answers/information.

4.2 Role of CBI/ ED

On 21.10.2009, the CBI registered an FIR against unknown persons and officials. On
22.10.2009, the CBI raided the DoT’s headquarter and took away the files relevant to 2G
spectrum. The offices of private companies who got the licenses were also raided. The
officials were questioned by the CBI. The ED (Enforcement Directorate) also carried out its
investigation independently.
Initially CBI as well as ED were investigating the matter, but after sometime, further
investigations were stopped and Supreme Court appointed CVC in Feb 2012 to help it
monitor the investigations done by the CBI, Enforcement Directorate, Income Tax and
others in view of involvement of several influential persons in the scam.

4.3 Role of CAG

Comptroller Auditor General of India (CAG) started auditing of new licenses in March 2010.
On 8.11.2010, CAG submitted it’s report to the President of India which had the following
two findings:
 It estimated the loss on account of 2G scam as Rs 1.76 lakh crore.
 It also found that of the 122 licenses issued on 10.01.2008, 85 licenses were issued
to companies which were not eligible to get licenses.


2G Spectrum Scam

5. Current status and Proceedings

5.1 Companies which are being investigated

Companies wich received licenses from Raja in Jan 2008 are being investigated: Unitech
(Unionor), Swan Telecom (DB Etisalat), Loop Telecom, STel, Datacom/Videocon, Shyam
Telecom (MTS), Spice, Idea, Reliance Communications, and Tata Teleservices. Loop
Telecom Pvt Ltd, Loop Mobile India Ltd, Essar Tele Holding, Essar (Parent group of Essar
Tele Holding)
In addition some companies of Raja associates and Ms. Nira Radia are also being
investigated for the routing of money.

5.2 What did Supreme Court said?

Mr. Raja had quit only after the Hon’ble Supreme Court made several observations during
the hearing PIL (Public interest litigation) including the one “that the same minister is still
continuing”. Investigation took momentum after SC’s comments, “does CBI do this kind of
slow investigation in every matter, how long will it take .... 20 years”. SC’s ordered the court
to monitor the investigation. SC also feared governments and corporate interference
because of which it had ordered the before filing of the charge-sheet, the investigating
agencies (CBI, ED, I-T) must produce before the SC the charges that it is likely to file and
the evidence collected to support them. SC also made statements regarding no arrest
made in the case.

5.3 What has Government done so far?

Role of government is considered crucial in such cases however in this case the
government dint do anything significant rather Mr. Kapil Sibal started a campaign against
the CAG calling their figure of loss Rs 1.76 Cr as erroneous. He further went on saying that
no loss has happened. Later, he started saying that the government followed the same
policy of FCFS (First Come First Serve).
So whatever is happening, it is because of the Supreme Court, pressure from opposition
parties and media.
Following the pressure, first Mr. Raja resigned. Thereafter, after Mr. Kapil Sibal took over as
Telecom Minister. He issued show-cause notices to certain companies and collected about


2G Spectrum Scam

Rs 280 Cr as penalty from them for not fulfilling the rollout obligations. Thereafter,
government has not taken any step.

5.4 Arrests made in this scam

As on 13.2.2011, CBI has arrested four people:
1. Mr. A Raja: Telecom Minister when the licenses were granted
2. Mr. Siddharatha Behura: Telecom Secretary when licenses were granted
3. Mr. RK Chandolia: Raja's private secretary when licenses were granted.
4. M. K. Kanimozhi: Member of Parliament and daughter of M. Karunanidhi

5.5 Latest proceedings on 2G Scam

On 12th April 2012, the government filed presidential reference in Supreme Court seeking
the court's opinion on various issues arising from its 2 February 2012 judgment
On 2 February 2012 Supreme Court of India delivered judgment on petitions filed by
Subramanian Swamy and Centre for Public Interest Litigation (CPIL) which had challenged
allotment of 2G licenses granted in 2008. The Supreme Court quashed all 122 spectrum
licenses granted during the tenure of former communications minister A Raja. Along with
this the bench has also imposed fine on Unitech Wireless, Swan telecom and Tata
Teleservices and some others.


2G Spectrum Scam

6. Analysis

Loss of Rs. 1.76 lakh crore is enormous. In order to recover this loss, one way was to
cancel all the 122 licenses and then auction the spectrum. Now Supreme Court’s decision
has already cancelled all the 122 licenses.
Now, if 122 companies can be allowed to participate in the auction, they may get a chance
to continue their services by paying the right market price for the spectrum.

Now comes a question - Will this affect the tariff prices paid by the customer?
Not actually. Today, Market is very competitive due to which even new operators also tend
to reduce the tariff prices to gain market share. Moreover, after getting spectrum at cheap
prices, when companies sold their share / or spectrum at extremely high prices, there was
no impact on tariff prices by the new buying companies.
One more important point needs to be analyzed. All those 122 companies who are involved
in the scam, if have sold their share to other foreign companies at high prices after getting
the spectrum at cheap prices, troubling the foreign companies that bought share may not
be fair. Only, the original company’s which were involved in licensing should bear the
consequences.


2G Spectrum Scam

7. References

1. http://www.ndtv.com/article/india/what-is-2g-spectrum-scam-66418

2. http://www.2gscam.co.in/

3. http://en.wikipedia.org/wiki/2G_spectrum_scam

4. http://wosy.org/docs/2G%20Spectrum%20Scam.pdf

5. http://cag.gov.in/html/reports/civil/2010-1_19PA/Telecommunication%20Report.pdf
6. http://articles.economictimes.indiatimes.com/2012-02-02/news/31017253_1_2g-
spectrum-licences-spectrum-efficiency


2G Spectrum Scam

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