2G scam: Supreme Courts verdict

Actions of Department of Telecom and the Telecom minister were wholly arbitrary, capricious and contrary to public interest. Supreme Court on 2G scam
The Supreme Court of India on 2
nd

February 2012 declared the allocation of 2G spectrum by the Department of

Telecommunication during the tenure of erstwhile Telecom minister A.Raja as illegal. Declaring the allotment of spectrum as an example of arbitrary exercise of power, the Supreme Court cancelled the 122 licenses allotted on or after 10 January 2008 by the Telecom Department for the 2G spectrum. The Supreme Court considered spectrum to be a natural resource and held that natural resources are vested with the government as a matter of trust in the name of people of India, and its the solemn duty of the state to protect the national interest, and natural resources must always be used in the interests of the country and not private interests.
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The role of A.Raja in scam

A.Raja had supposedly exercised his power in an arbitrary manner while allotting the 2G spectrum to his cronies at a throw away prices. There were about 575 applications which came to Telecom Department for the allocation of the 2G spectrum during the tenure of Raja. However, Raja arbitrarily decided that the licenses would be allotted to only those firms that applied before September 26, 2007. Raja also changed the rules to say that licenses would be allotted on First Come First Serve basis. This was done to favor the cronies. The Supreme Court held that there was a fundamental flaw in the first-come, first-served principle. As a result of this the auction of the 2G spectrum did not take place in-spite of the fact that there were 575 applicants for 122 licenses. This caused a heavy loss to the public exchequer. According to the reports of Comptroller and Auditor General, the presumptive loss to the public exchequer because of the arbitrary allocation of the 2G spectrum at a throw away prices is about 1.76 lakh crore. The Supreme Court in the judgment held that the auction will be the only route in for allotment of licenses in the future.

Cancelled licenses
The following is the account of the cancelled licenses:

S.No

Name of Company/Group

Number of License cancelled

22 21 21

Subscribers (in millions)

36.28 3.21 14.12

1 2 3

Unitech and Telnor Loop Telecom Sistema Shyam (MTS)

4 5 6 7 8 Total

Videocon Etisalat DB Idea and Spice S Tel Tata Teleservices

21 15 13 6 3 122

5.45 1.69 6.6 3.57 NA 70.92

The implications of the verdict

The firms whose licenses are cancelled have either to go out of the business or have to bid again in the auction. The subscribers of these telecom companies had to migrate to the other operators. The government would possibly gain extra revenue from the fresh auction of the spectrum There are apprehensions that the call tariff might increase because of auction at high rates Some of the telecom operators might roll back from India, this can make telecom market less competitive and can lead to dominance of few players The decision although is ethically and politically correct, might give the signal that the Indian markets as highly vulnerable to political risks. This has come at the time when the country is encountering gloomy growth rate and the world is in the grip of Euro debt crisis.

Conclusion

The judgment of the Apex court is landmark not only in curbing the corruption but also giving direction to the allocation policies of similar nature Up-to where the apprehension regarding the call tariff is concerned, it should be noted that cost to acquire the spectrum through bidding would be a Sunk Cost for the companies. The Sunk Cost play no role in determining the sale prices of goods and services Even if some of the Telecom companies roll back from India, there are enough number of players in almost all the telecom circles across the country that the interests of the consumers would not be effected because of lesser competition