2G Spectrum Scam

Spectrum – Details
1. What is Spectrum
2. Natural resource
3. Underutilisation
 Spectrum – Details
1. Radio freq used for various forms of
communications
2. Space, FM radio, mobile communications,
aeronautical satellite services etc
3. Inadequate to service 700 million plus
consumers on mobile networks
1. Call drops
2. Missed sms
 Spectrum – Details
1. International Telecommunications Union
2. Country specific allocations
3. Mobile handsets manufactured across the
world operate on GSM 900-1800 bands
4. India – NFAP – National Freq Allocation
Plan
 Spectrum – Details
1. 0-87.5 MHz – Marine & Aeronautics
2. 87.5 – 108 – Radio
3. 109 – 173 – Satellite
4. 174 – 230 – not allocated as of now
5. 230 – 450 – Satellite and Outdoor satellite
communication vans
6. 450 – 585 – not allocated
7. 585 – 698 – TV broadcasting
 Spectrum – Details
1. 698 – 806 – not allocated
2. 806 – 960 – GSM & CDMA communications
3. 960 – 1710 – Aeronautical
4. 1710 – 1930 – GSM
1. Minimum spectrum needed to launch GSM
service = 4.4 MHz
2. In 2002 Govt began an additional spectrum
allocation process linked to subscriber
base.
3. Defence was holding about 65 MHz and
agreed in 2010 that it will sell 45 MHz.
4. Out of this 45, 25 MHz is earmarked for 3G
services
 Historical Overview
1. Pramod Mahajan – BJP
1. License fee while awarding licenses vs revenue
sharing (severely criticised). Reliance gained.
2. Arun Shourie – BJP
1. Unified Access License UAL
2. Fixed Line operators went WLL. Reliance and
TATA Teleservices gained.
3. A Raja – DMK
4. Kapil Sibal – Congress
 Facts on 2G allocation
1. Jan 2008. Announcement was released on
DoT website – LOIs for licences with
spectrum – will be issued between 3:30 and
4:40 p.m.
2. First Come first serve basis
3. Application fee to receive these LOIs ran
into thousands of crores and had to be paid
via demand draft.
 Summary
1. 122 licenses were sold to a total of 15 players
in that limited time window
2. 13 Companies in 85 license case did not
satisfy DoT eligibility criteria
3. 45 / 85 were issued to those whose main
business line was not Telecom (as per MoA &
AoA)
4. MOCIT received 10772 crore
5. Price base used for the auction was 2001
price.
 New and questionable players
1. Unitech – real estate company with no exposure in
Telecom applied and got spectrum. Cost 1661 Crore. Sold
60% stake soon to Telenor (Norway’s MNC Telecom
company) – Indian Brand name UNINOR – at Rs 6200
crore.
2. Swan Telecom – totally new company with no
exposure in Telecom applied and got spectrum. Cost 1537
Crore. Sold 45% stake soon to Etisalat (UAE’s MNC
Telecom company) – at Rs 4200 crore.
3. TATA Teleservices – 26 % offloaded to DOCOMO
for 13230 core
 CAG report loss assessment
1. Underpricing 2G spectrum auction pricing by
using 2001 prices instead of market prices
2. Allowing companies to use GSM and CDMA
services on the same license + spectrum
allocation
3. Allocating more spectrum to companies as
compared to what their licenses specified

Total loss to the govt revenue from the private

bodies has been put at Rs 176645 crore
 Base Price
• CAG in its report is using the price of 3G
auction (of 2010) – applying it to the
auction of 2G that happened in 2008- and
then comparing the price used actually
(2001 prices).
• 2G vs 3G. Isn’t 2G closer to 3G these
days?
 Base Price
• How is market price determined?
• Why is there a stink on the 2001 price
logic
• Did objectives of government change –
mass penetration versus revenue
generation from the sector.
 CAG Price calculation
• In Jan 2008 DoT was offering an All India
License at Rs 1658 crores (same as it
wanted in 2001!)
• In Nov 2007, Shyam Telecom had
approached Raja & PM stating willingness
to pay 13752 crore for an All India
License.
 CAG Price calculation
• As per this benchmark of prevailing price,
122 licenses (35 under Dual use – GSM +
CDMA) would have generated 102498
crore.
 Overallocation
• Licenses were issued for 6.2 MHz
• CAG report – more spectrum allocated as
compared to the license issued
– BSNL (61.6 MHz in 19 circles)
– Bharti (32.4 MHz in 13 circles)
– Vodafone (19.6 MHz in 7 circles)
– Etc
Loss of this additional spectrum (at 2010 fee)
pegged at 36993 crore.
 DUAL use?
• GSM and CDMA both were used by the
players under one license in one circle
• Reliance, TATA Teleservices
• 35 licenses were used like this in reality
• As per CAG these dual usage licenses
could have been priced higher and loss of
not collecting this revenue is pegged at
37154 crore.
 All components
• New Licenses (122) Rs. 1,02,498 crores
• Dual technology (35 licenses) Rs.37,154 crores
• Spectrum beyond contracted quantity of 6.2 MHz
Rs.36,993 crores
• Total loss Rs.1,76,645 crores
 DoT VS TRAI
• Origins
• Scope
• An impression that TRAI
recommendations are binding is entirely
false. TRAI Act allows DoT to reject,
modify or accept recommendations
subject to procedure laid down under TRAI
Act.
 Sibal vs CAG
• Sibal’s comments
– CAG used wrong price
– Loss is notional, govt could not have earned that much extra
– Purpose of auctions have been changing of late and it is unfair
to use 3G auction as a standard
– In Public interest if more players get license the sector does well,
Revenue of Govt was not the objective.
– As per 5 year plan policy documents, Revenue maximisation
was not an objective
– Precedents were being followed, as was happening in NDA rule,
it continued in UPA also
– If other crucial sectors get subsidy, what is wrong with Telecom
sector getting some (by way of offering licenses at reduced fee)
 Sibal’s arithmetic
• Government has not made up its mind on the charge for
spectrum beyond 6.2 MHz, therefore, loss of Rs.36,993
crores needs to be excluded as of now.
• The remaining loss of Rs.1,39,652 crores is only Rs.99,000
crores since government has only given 4.4MHz spectrum,
while CAG has wrongly calculated loss based on 6.2 MHz.
• Since the 3G auctions were held in 2010, but 2G licenses
were given in 2008, the “timevalue” of loss of spectrum is not
Rs.99,000 crores, but Rs.56,000crores.
• Since spectrum was given late and not in 2008, license term
is 19, not 20 years, loss is down to Rs.53,000 crores.
• Since 3G spectrum is three times more efficient than 2G, the
loss is further down to Rs.17,755crores.
• Since 4.4MHz is free with UALlicense anyway, the actual loss
is zero.
 CAG report, TRAI and other
oppositions to Sibal’s point of view
• TRAI recommendations, 11May, 2010, Section 3.99,
states:
– “Accordingly, the Authority recommends that all the service
providers having spectrum beyond the contracted quantum
should pay excess spectrum charges at the “Current
Price”, pro-rated for the period of the remaining validity of
their license subject to a minimum of seven years.”
 CAG report, TRAI and other
oppositions to Sibal’s point of view
• TRAI Recommendations of 11 May, 2010
(Section 2.47) concludes: “Authority is clearly of
the view that contracted spectrum for all access
licenses issued in or after 2001 is 6.2 MHz.”
• The license entitlement is for 6.2MHz. That
4.4MHz has been given initially, does not mean
that the entitlement is limited to 4.4MHz. In most
cases, it is given in phases–4.4MHz, then
1.8MHz and so on.
 CAG report, TRAI and other
oppositions to Sibal’s point of view
• MoCIT thinks time value of money works
between 2008 and 2010, but fails between 2001
and 2008.
 CAG report, TRAI and other
oppositions to Sibal’s point of view
 CAG report, TRAI and other
oppositions to Sibal’s point of view
Did the new players finally add to
the sector?