The government auditor CAG has accused the Telecom Ministry for undervaluing 2G spectrum, sold to new players in 2008, and held that the allotment price was not "realistic".

"Policy failed to address the issue of price-discovery of spectrum... The August 2007 Report of Trai brought out that entry fee as it existed in 2001 was not a realistic price for obtaining a license in the changed situation, considering the dynamism and growth of telecom sector and it needs to be reassessed through a market mechanism," the CAG said in its latest report on 2G spectrum.

The Department of Telecom (DoT) is facing allegations of having distributed new telecom licences and spectrum (radio waves) at throwaway prices, causing huge losses to the exchequer.

Nine firms were issued licences, bundled with start up 2G spectrum, in January 2008 at Rs 1,658 crore for pan-India operations.

The CAG report said that the telecom regulator TRAI observed that the value of spectrum was not correctly reflected in the extant pricing model and recommended for delinking of spectrum from allotment.

The report, however, also observed, "... TRAI did not favour any change in 2G spectrum pricing even for new entrants on the grounds that it would affect the principles for level playing field for the new operators."

The government auditor has said that the price at which the spectrum was alloted in 2008 was based on 2001 prices which was quite low and has resulted in a loss to the government exchequer.

The statutory auditor also highlighted that first-come, first-serve basis was not followed in its true sense for the allotment of spectrum.

The CAG also alleged that the DoT decided on cut-off dates twice in November 2007, and later changed it in January 2008 that favoured select companies.

"It was noticed that 13 applicants were even ready with demand drafts drawn on dates prior to the notification of cut-off date and some had even managed securing bank guarantees," the report said.

The CAG report also said that the these benefited applicants had prior information about the documents and high value demand draft, hence they were able to "comply with the LOI conditions within a few hours and in as less as 41 minutes in respect of 22 service areas."

According to CAG, the Telecom Ministry ignored the concerns voiced by the Prime Minister's Office, the Finance Ministry and the Law Ministry and went ahead with 2G spectrum allotment at a price discovered 7 years back.

"The availability of this spectrum has become scarce and the government has to incur huge expenditure for getting it vacated from Defence Authorities by providing alternate media to them," the report said.