2G scam back in court, a look at 20 yrs of telecom scandals

Niira Radia, a corporate lobbyist who became as (in)famous as then telecom minister A Raja when the 2G spectrum allocation scam broke, is scheduled to appear in court as a CBI witness on May 28. On the occasion, as the telecom scandals return to haunt public imaginaiton, we attempt to provide details of incorrect decisions taken by various PMs, telecom ministers and bureaucrats over the Last Two decades


Alam Srinivas | May 28, 2013

Sanchar Bhavan, the telecom ministry headquarters and (left) Sukh Ram, then telecom minister arrested for role in allocation scam in early 1990s, and A Raja, then telecom minister arrested in Feb 2011 for his role in 2G spectrum allocation scam
Sanchar Bhavan, the telecom ministry headquarters and (left) Sukh Ram, then telecom minister arrested for role in allocation scam in early 1990s, and A Raja, then telecom minister arrested in Feb 2011 for his role in 2G spectrum allocation scam

Seven prime ministers, a similar number of telecom ministers and several bureaucrats in the department of telecom (DoT) have aided, abetted or silently looked away as a series of scandals rocked the Indian telecom sector over the past two decades (1994-2013). Although the mobile revolution has been showcased as the biggest success story in post-reforms India, the wireless progress has turned into the worst example of policy manipulations and crony capitalism. It has involved every regime that has come to power, be it the Congress, United Front, two rounds of NDA or the two rounds of UPA.

A part of this story has been recorded in the summary and recommendations of the draft report of the joint parliamentary committee (JPC) on 2G scam. But some has also been left out for political reasons. Obviously the controversies during the 1991-96 Congress tenure were conveniently left out; the ones related to the 2008 2G scam were considerably diluted with all responsibility pinned on a few officials and the then telecom minister, A Raja, who served time in jail and is now out on bail. So, here is an attempt to provide the full details of the specious decisions taken by various PMs, telecom ministers and bureaucrats.

The Sukh Ram era

The dark underbelly of the cellular sector was exposed in the early 1990s, when the first auction to give eight licences, two in each of the four metros (Delhi, Mumbai, Kolkata and Chennai), was held. Before the bidders were finalised in 1994, Hutchison Whampoa of Hong Kong alleged it was unfairly edged out of the race. The company was reinstated as the lead bidder in Mumbai. Later, Sukh Ram, the then telecom minister, was accused of favouring Himachal Futuristic, which bid an astonishing amount of over Rs 85,000 crore for basic (fixed line) licences. Later, the minister was arrested as millions of rupees of cash was found at his residences and convicted.

United Front regime

By mid 1997, the mobile operators realised they had bid too high and could not pay the annual licence fees. They urged the government to provide for a moratorium on payments, and increase the licence period from 10 to 15 years. In November 1997, a review meeting headed by PM IK Gujral decided to refer the matter to the newly-formed regulator, telecom regulatory authority of India (TRAI).

However, without any discussions with the PMO, telecom minister Beni Prasad Verma and TRAI, telecom secretary AV Gokak decided a month later to entrust the study to another government agency. Gokak’s contention was that the regulator would take too much time. However, the bureau of industrial costs and prices (BICP), which was asked to conduct the study, submitted its report in November 1998, or nine months after the initial reference by DoT. The JPC draft report stated that this negated Gokak’s argument about delays, and “TRAI was ignored as a matter of design rather than the so-called tight time schedule….”

NDA I regime

The shocking part was that the NDA government, headed by Atal Bihari Vajpayee, which assumed power in early 1998, did not wait for the BICP report. This was because the DoT had already asked ICICI to analyse the telecom sector despite the fact that the November 1997 meeting under Gujral had expressly forbidden the involvement of an y private consultant. According to the JPC draft report, this introduced the issue of ‘conflict of interest’ because ICICI was “a lender to a number of (mobile) companies which had represented to the department (DoT) seeking reliefs….”

The May 1998 report of ICICI essentially contained the same recommendations that were demanded by the operators: a moratorium for two years and extension of licence period to 15 years.

A month later, the telecom secretary said that any concessions to the sector should be finalised once the BICP report was in and the entire issue had been referred to the attorney general (AG). Gokak feared that if the norms were changed midway, the unsuccessful mobile bidders may go to the courts and state that they were not offered the same conditions. In September 1998, the NDA government announced an increase in the licence period although it had received neither the BICP report nor the AG’s views. The JPC draft report concluded that “Evidently, the decision… was based on the report of ICICI, the only report that was available at that time.”

More importantly, the cabinet decision was taken in a hurry in a bid to unduly favour the operators. The telecom minister, finance ministry and the attorney general opposed any sops to the industry. In December 1998, telecom minister Jagmohan “strongly favoured the option to recover all the outstanding dues (Rs 3,100 crore) from the operators”. The finance ministry said that non-recovery would add Rs 2,800 crore to the budgetary deficit. In January 1999, the AG felt that if the operators had made wrong projections about revenues and profits, it did not absolve them from their obligations (licence fees). But there was nothing anyone could do now as the cabinet had already taken the decision to extend the licence period to 15 years in September 1998.

In July 1999, based on a report by the group on telecom, the NDA government approved a ‘migration package’ under the new telecom policy (NTP-1999). The migration allowed operators to move from licence fees to revenue share (where a percentage of annual revenues was shared with the government), give up their duopoly status in various circles (more competition), and withdraw litigations against DoT. The only problem was that after losing the no-confidence motion in parliament, NDA-I had become a caretaker government by that time. Therefore, president KR Narayanan felt “there was no urgency in taking a decision”, the election commission expressed concern and, finally, the Delhi high court stated that the migration package would be “subject to approval of the council of ministers after the constitution of the 13th (next) Lok Sabha.” The JPC draft report concluded that the NDA government “acted in haste” and that it had to “forego revenue to the tune of Rs 42,080.34 crore….”

NDA II regime

The biggest controversy during NDA II was over wireless in local loop (WLL), which allowed fixed-line operators to offer limited mobility for the last-mile connection to the individual homes through a wireless mechanism. In January 2001, TRAI gave recommendations on WLL in an attempt to lay out clear demarcations between services offered by cellular and basic services operators. The idea was that fixed-line (basic) players should not impinge into the mobile arena through WLL.

In April 2001, the group on telecom-IT said that NTP-99 allowed limited mobility as it would “greatly facilitate the rollout in rural areas at affordable prices” and in urban areas where it was not technically feasible to provide wireline services”. The next month, when Ram Vilas Paswan was the telecom minister, DoT announced WLL guidelines. However, several basic service companies like Reliance Infocomm (now Reliance Communications) used WLL to offer mobile services throughout the country. They flouted the rules on limited mobility and competed directly with the cellular operators, who promptly petitioned the telecom tribunal.

The telecom disputes settlement and appellate tribunal (TDSAT) ruled in March 2002 that it could not question WLL, which was part of the government policy. When the mobile players approached the supreme court, it asked TDSAT to review WLL since it had the authority under the TRAI Act to do so. In August 2003, TDSAT upheld the validity of WLL in a majority judgment. By October 2003, NDA II announced a new telecom policy that envisaged a unified licensing regime to be implemented in two phases. This was when Arun Shourie was the telecom minister, and the cabinet decision legitimised WLL.

However, the JPC said that the DoT was at fault for allowing WLL for such a long time (2001-03). This was clear from the fact that in 2003, TRAI found that Reliance Infocomm, while being a fixed-line operator, had acted like a cellular one by using WLL, and it was liable to pay Rs 1,096 crore as entry fee to enter mobile services and a penalty of Rs 485 crore. In September 2003, a group of ministers also took note of violations by Reliance Infocomm.

Pramod Mahajan, who was NDA II’s telecom minister between 2001 and 2003, helped in another controversial decision, which is now being investigated by the CBI. This was allocation of additional spectrum beyond 6.2MHz and up to 10 MHz to cellular operators, including WLL players. In January 2002, Shyamal Ghosh, chairman, telecom commission, said that additional spectrum of up to 10 MHz may be allotted at spectrum charge of 4% of adjusted gross revenue (AGR) under the revenue-share regime. This, according to JPC draft report, was considerably less than the previous policy, which envisaged a payment of 2% of AGR for the initial spectrum of 4.4 MHz and an additional 1% for an extra 1.8 MHz or a total of 3% of AGR for 6.2MHz. As per this formula, every additional 1.8MHz should have attracted an additional 1% AGR payment, or 4% for 8 MHz, and 5% for 9.8MHz.

Unified licensing, announced by NDA during Shourie’s tenure as telecom minister, changed the rules of the game – again. It led to the mindboggling 2G scam in 2008. In November 2003, after the cabinet decision on unified licence, telecom secretary Vinod Vaish spoke to TRAI chairman Pradip Baijal on the phone to seek clarifications on how much the new operators should pay for the licence and spectrum. Baijal wrote a memo on November 14, 2003 that the rate should be fixed at what the fourth operator in each circle paid in 2011. This was unprecedented as the issue was not discussed at any other government forum – cabinet, group of ministers, DoT or with the telecom minister. The JPC draft report took objection to the manner in which DoT dealt with the matter and TRAI rendered its opinion.

On November 24, 2003, telecom minister Shourie took the decision to grant unified licences on first-come first-served (FCFS) basis, rather than through the earlier preferred auction route. The logic was that the new regime allowed licences to be issued on a continuous basis, and not at one time through an auction. On the same day, he accepted TRAI’s formula on how to charge for spectrum. However, the FCFS process was not publicised. This, according to the JPC draft report, was “against the cannon of fairness and transparency”, which is evident from the fact that no new operator applied for a licence during that period while the NDA II remained in power. Between November 2003 and September 2004, a few months after UPA had come to power, 28 new licences were issued.

UPA I regime

This was the phase when the biggest, most controversial and most manipulative scandal took place. It is largely known as the 2G scam, when Raja twisted and distorted the FCFS process, went against the views of PM Manmohan Singh and FM P Chidambaram, and issued 122 licences in January 2008 at 2001 prices. According to the comptroller and auditor general (CAG), as the licences were given cheap, it resulted in a presumptive loss of Rs 1,76,000 crore. Much has been written on this scam, and several politicians, bureaucrats and corporate executives have gone to jail in the past few years.

This proved how the whole policy process had been reduced to a fiefdom of a single minister, and how all the other senior ministers, including the PM, simply shied away from their collective responsibilities. Raja was allowed to do as he wished making his own rules in the process, and no one stopped him. He allowed applicants to either break the FCFS queue, or not allow many to join it. First, Raja announced a cut-off date that ejected dozens of potential investors out of the queue. Then, in late 2007, he approved dual technology licences; players with CDMA services could offer GSM and, thus, broke the original GSM queue. Finally, the GSM queue was itself broken when Raja changed the norm from giving licence to the first one who had applied for it to the first one who fulfilled the conditions (like bank guarantee) of the licence. The only thing the PM and others did was to write a few letters pleading with Raja not to go ahead.

Although the JPC draft report gave clean chits to the PM and FM for the 2G scam, there can be no excuse that the two, and the rest of the cabinet, had given a free hand to Raja. More important, as Raja contended, the PM, FM and others knew exactly how he had decided to dole out the licences. Since this phase of the scandal has been fleshed out in detail through hundreds of newspaper articles and the CAG report, there is no point in reiterating them. One has to only say that this was the most blatant, brazen and extreme example of crony capitalism and policy manipulation.

UPA II regime

Once the 2G scam was out in public, and after the CAG report came out, UPA II leaders tried to save the government, especially the PM and FM, and put the blame only on Raja and a few DoT officials. They tried to dispel the notion that a huge loss had resulted from the then telecom minister’s actions. In fact, since the JPC on 2G is headed by a UPA member, its draft report attempted to do the same. Therefore, this may be an opportune time to dissect and analyse these aspects of the report. For example, the JPC draft report stated that the loss calculated by CAG on the basis of an offer given by SingTel was “intriguing” since it had been “listed among ineligible companies”.

Similarly, it questioned the calculation of loss by comparing auction prices of 3G licences issued in 2010 with those of 2G ones given on FCFS basis in 2008. “How could revenues realised in 2010 for 3G be used for calculating the loss on account of 2G spectrum allocated as far back as in 2008 when the demand-supply position was also very different is something that needs proper justification,” questioned the draft report. The report also dismissed the third way CAG had used to calculate the loss figure, i.e., based on what foreign investors paid subsequently to buy strategic stakes in some cellular firms.

The point to ponder is that it does not matter what the loss figure was, as long as it is accepted that there was a certain loss that was huge. No one can deny that spectrum was sold cheap in 2008, at 2001 prices, and the supreme court’s decision to cancel all the 122 licences bears this out. Therefore, the JPC draft report is dealing with semantics and logic only to discredit the CAG report, which was the first government agency to highlight the 2G scam in all its contours.

What is important here is that several wrongs were committed, they were under the cabinet’s eyes, and no one stopped them. Raja could well be right that he informed everyone, who knew what was happening, and did not interfere much with the process. The JPC draft report stated that “the PM was misled about the procedure decided to be followed by the DoT…” If indeed it is true, the PM should have intervened in the issue when, on January 15, 2008, or five days after the DoT announced the issuing of the licences, Chidambaram sent him a note. The FM stated that “the most transparent method of allocating spectrum would be through auction”. If Chidambaram believed in this logic, why did he not put his foot down during his meeting with Raja on January 30, 2008, and the ones between May 29, 2008, and June 12, 2008?

Finally, on July 4, 2008, when the PM, FM and telecom minister met, why did they not discuss the issue of spectrum pricing in its entirety, and restrict their decisions to the pricing of additional spectrum, over and above 6.2 MHz? However, the JPC draft report seemed to feel that the July discussions fulfilled the obligations under October 2003 cabinet decision (during NDA II), “which mandated that the DoT and ministry of finance would discuss and finalise spectrum pricing formula….”



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