2G spectrum scam

From Wikipedia, the free encyclopedia

The 2G spectrum scam 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. According to a report submitted by theComptroller and Auditor General based on money
collected from 3G licenses, the loss to the exchequer was

176,379 crore (US$38.27 billion). The issuing of the 2G licenses occurred in 2008, but the scam

came to public notice when the Indian Income Tax Department investigated political lobbyist Niira Radia and the Supreme Court of India took Subramaniam
Swamy's complaints on record.

In 2008, the Income Tax department, after orders from the ministry of Home and the PMO, began tapping the phones of Niira Radia. This was done to help
with an ongoing investigation into a case where it was alleged that Niira Radia had acted as a spy [1].

Some of the many conversations recorded over 300 days were leaked to the media. The intense controversy around the leaked tapes, became known in the
media as the Radia tapes controversy. The tapes featured some explosive conversations between Politicians, Journalists and Corporate Houses. Politicians
from Karunanidhi to Arun Jaitley[citation needed], journalists like Barkha Dutt and Vir Sanghvi and Industrial groups like the Tata's were either participants or
mentioned in these explosive tapes.
Contents
[hide]

1 Parties involved

1.1 Politicians involved

1.2 Bureaucrats involved

1.3 Corporations involved

1.4 Media persons and Lobbyists involved

2 Shortfall of money
3 Relationship between media and government

3.1 Ratan Tata petitions over leak

4 Response to scam
5 References

6 External links
[edit]Parties

involved

The selling of the licenses brought attention to four groups of entities - politicians who had the authority to sell licenses, bureaucrats who implemented and
influenced policy decisions, corporations who were buying the licenses, and media professionals who mediated between the politicians and the corporations
on behalf of one or the other interest group.
[edit]Politicians

involved

A. Raja, the Ex-Minister of Communications and Information Technology who was the minister when the controversial second round of
spectrum allocations took place. Mr.Raja, an MP of the Dravida Munnetra Kazhagam from the Nilgiris constituency, was forced to resign following the
public outcry.

Subramaniam Swamy, activist lawyer and politician, whose letters to the Prime Minister demanding action and affidavits and cases in the
Supreme Court bought the issue into the public limelight.

Arun Shourie, the minister for Telecom during 2003 in the previous BJP regime. It was Arun Shourie who introduced the controversial
technology neutral "Unified Access License", which allowed fixed line operators who had paid much lower license fees to offer mobile phone services,
at first in the limited WLL mode (Wireless in Local Loop) and later, following an out of court settlement between mobile operators and the BJP govt,
full mobility. This gave an advantage to players like Reliance and Tata Teleservices who managed to get mobile spectrum without paying the hefty
fees that earlier operators like BPL Mobile had paid.

Pramod Mahajan, the minister for Telecom between 1999 and 2003. Mr.Mahajan was the minister when the BJP Government took the
controversial decision to shift from a license fee based regime to a revenue sharing model which was roundly condemned both by political parties and
by economic experts.[2] The Comptroller and Auditor General also filed adverse reports citing a loss of over

64,000 crore (US$13.89 billion) caused

by this decision. The crux of A. Raja's defence is that he was following a policy of 2G allocations put in place by the BJP and it would be unfair to levy
prices based on 3G spectrum to 2G licenses. Pramod Mahajan, who was seen to be friendly with various corporate houses, had been bought in to
replace Jagmohan as Telecom minister just days before the decision was announced. The biggest beneficiary of this abrupt shift in policy
was Reliance Infocomm who gained thousands of crores of spectrum without paying a dime in additional license fees. Pramod Mahajan and his
cronies are reported to have received benami shares of Reliance Industries as a "gift" [3]

[edit]Bureaucrats

involved

S Behuria, former telecom secretary who served in the DOT at the time of the 2G allocation.

Pradip Baijal, a bureaucrat who is alleged to have implemented policies that favored certain Telecom companies when he was heading the
TRAI. Post retirement, Baijal joined Noesis, a consulting firm promoted by Niira Radia [4][5][6]. A Raja has made references to Baijal's decisions in 2003
as the basis for his decisions in 2008. The houses and offices of the bureaucrat were recently raided by the Central Bureau of Investigation as part of
their investigations. [7].

[edit]Corporations

involved

Unitech Group a real estate company entering the telecom industry with its 2G bid; sold 60% of its company stake at huge profit
to Telenor after buying licensing (Including land values properties for towers) [8]

Swan Telecom sold 45% of its company stake at huge profit to Emirates Telecommunications Corporation (Etisalat) after buying licensing[8]
Loop Mobile
Videocon Telecommunications Limited
S Tel
Reliance Communications
Sistema Shyam Mobile (MTS) Sistema Mobile Russia
Tata Communications

[edit]Media

persons and Lobbyists involved

Nira Radia, a former airline entrepeneur turned corporate lobbyist whose conversations with politicians and corporate entities were recorded by
the government authorities and leaked creating the Nira Radia tapes controversy

Barkha Dutt, an NDTV journalist alleged to have lobbied for A. Raja's appointment as minister

Vir Sanghvi, a Hindustan Times editor alleged to have edited articles to reduce blame in the Nira Radia tapes

[edit]Shortfall

of money

A. Raja arranged the sale of the 2G spectrum licenses below their market value. Swan Telecom, a new company with few assets, bought a license for
1,537 crore (US$333.53 million).[9] Shortly thereafter, the board sold 45% of the company to Etisalat for
company formerly invested in real estate and not telecom, the Unitech Group, purchased a license for
board soon after sold a 60% stake in their wireless division for

4,200 crore (US$911.4 million). Similarly, a

1,661 crore (US$360.44 million) and the company

6,200 crore (US$1.35 billion) to Telenor.[9] The nature of the selling of the licenses was that

licenses were to be sold at market value, and the fact that the licenses were quickly resold at a huge profit indicates that the selling agents issued the
licenses below market value.

Nine companies purchased licenses and collectively they paid the Ministry of Communications and Information Technology's telecommunications division
10,772 crore (US$2.34 billion).[9] The amount of money expected for this licensing by the Comptroller and Auditor General of India was
176,700 crore (US$38.34 billion).[10]
[edit]Relationship

between media and government

Main article: Nira Radia tapes controversy

Media sources such as OPEN and Outlook reported that Barkha Dutt and Vir Sanghvi knew that corporate lobbyist Nira Radia was influencing the decisions
of A. Raja.[11] The critics alleged that Dutt and Sanghvi knew about corruption between the government and the media industry, supported this corrupt activity,
and suppressed news reporting the discovery of the corruption. [11]
[edit]Ratan

Tata petitions over leak

The tapes leaked to the public include conversations between Nira Radia and Ratan Tata. Tata petitioned the government to acknowledge his right to privacy
and demanded accountability for the leak, with the Minister for Home Affairs, CBI, Indian Income Tax Department, the Department of Telecommunication,
and the Department of Information Technology as respondents in the petition. [12]
[edit]Response

to scam

In early November 2010 Jayalalithaa accused the Tamil Nadu state chief minister M Karunanidhi of protecting A. Raja from corruption charges and called
for A. Raja's resignation.[13] By mid November A. Raja resigned.[14]

In mid November the comptroller Vinod Rai issued show-cause notices to Unitech, S Tel, Loop Mobile, Datacom (Videocon), and Etisalat to respond to his
assertion that all of the 85 licenses granted to these companies did not have the up-front capital required at the time of the application and were in other
ways illegal.[15] Some media sources have speculated that these companies will receive large fines but not have their licenses revoked, as they are currently
providing some consumer service.[15]

In response to the various allegations , the Govt of India has replaced the then incumbent Telecom minister ,A Raja with Kapil Sibal who has taken up this
charge in addition to being the Union minister for Human Resources Development.Mr Sibal contends that the "notional" losses quoted are a result of
erroneous calculations and insists that the actual losses are nil. [16] [17]

THE INCREDIBLY fast expansion of mobile telecommunications in India has been accompanied by a series of scandals that are a consequence of poor regulatory oversight and deliberate
manipulation of policies to favour a select clutch of companies. The biggest and most brazen of these scandals relate to the undervaluation of a valuable national resource
electromagnetic spectrum or radio frequencies used by mobile phone service providers by the Department of Tele - communications (DoT) under former Minister for Communications
and Information Technology A Raja.

According to a report of the Comptroller & Auditor General (CAG) of India tabled in Parliament on 16 November, the total presumptive or notional loss to the national exchequer on
account of undervaluation of spectrum was in excess of Rs. 1.7 lakh crore or nearly $40 billion at current exchange rates, making it the biggest
scandal of its kind in the country.

While the growth of telecom in India is often attributed to the positive impact of deregulation and the government giving up its monopoly over this
sector, the other side of the coin is crony capitalism. Rules and guidelines are bent in an arbitrary and opaque manner and the recommendations of
the regulator, the Telecom Regulatory Authority of India (TRAI), selectively applied to benefit a few private firms, some of whom have no experience
in telecom.

Mahajan assisted Reliance

Infocomm
to
become
a
nationwide operator without
paying full licence fee

Soon after Raja became communications minister in May 2007, a small section of the media and a few Opposition politicians started highlighting how the exchequer was being deprived of
large sums of money on account of the faulty manner in which the DoT had allocated spectrum to certain companies. It was pointed out that the DoT under Raja cherry-picked the TRAIs
recommendations, choosing some and ignoring others. Nothing happened for more than three years. Raja claimed he was following precedents as well as policy guidelines that had been
put in place by the earlier Bharatiya Janata Party (BJP)-led National Democratic Alliance (NDA) government and that he was adhering to the laws of the land.

The enormity of the scandal was acknowledged only after the Supreme Court started asking pointed questions of government agencies and the CAG came out with a scathing indictment
of DoT policies and practices. Raja was forced to resign his post and the Central Bureau of Investigation (CBI) made to expedite its investigations that had begun in October 2009 with the
lodging of a First Information Report (FIR) against unknown persons.

The CAG contended that (a) by underpricing second generation (2G) spectrum, (b) by allowing companies to use two competing technologies the global system of mobile (GSM)
communications and the Code Division Multiple Access (CDMA) technology using the same licence and (c) by allocating more spectrum to companies than what their licences specified,
the total loss to the country could be as much as Rs. 1,76,645 crore more than Rs.10,000 for each citizen or over four times the current annual budget of the worlds largest social
security scheme, the programme under the Mahatma Gandhi National Rural Employment Guarantee Act.

If the prime minister was indeed aware of what was going on, why did he not take any action against Raja? Why did he remain silent when Raja claimed that he had his approval while
allotting licences whereas the CAG categorically stated that he had blatantly flouted the prime ministers advice? These are the questions that have raised a huge political storm,
completely paralyzed the winter session of Parliament for three weeks and strained relations between the Indian National Congress and its partner in the United Progressive Alliance (UPA)
coalition from Tamil Nadu, the Dravida Munnetra Kazhagam (DMK).

Telecom scams are not new. In August 1996, the CBI registered an FIR against former telecom minister Sukh Ram after recovering 3.62 crore from his residences in Delhi and Himachal
Pradesh he made it to the Guinness Book of World Records for the wrong reasons! Thirteen years later, in 2009, he was sentenced to three years of rigorous imprisonment for criminal
conspiracy and spent time behind bars for a month before being released on bail.

Raja claimed 2G and 3G

spectrums
were
not
comparable, just as basmati
rice was not the same as PDS
rice

During the NDA government, there was a major controversy when telecom companies were allowed to move from a licensing regime to a revenuesharing one. The sudden removal of Jagmohan from the post of communications minister in 1998 was reportedly a consequence of his refusal to toe
the line of a section within his government. In July 1999, following the recommendation of a Group of Ministers headed by Jaswant Singh, the fixed
licence fee regime was changed to a revenue share one. This was adversely commented on by the CAG. According to Ratan Tata, if a hypothetical
amount was to be calculated at that point of time, the loss to the exchequer would be about Rs. 50,000 crore.

Other ministers for communications during the NDA regime, including the late Pramod Mahajan, were accused of assisting Reliance Infocomm to
become a nationwide operator offering full mobility in its cellular phone operations without paying the full licence fee. This decision of the DoTwas
against TRAI recommendations and the resultant loss to the exchequer was said to be in the region of 1,100 crore. However, the sheer size of the
subsequent undervaluation and misallocation of spectrum makes the earlier scandals pale into relative insignificance.

ON 10 JANUARY 2008, at 2.45 pm, an announcement was posted on the DoT website stating that letters of intent (LOIS) for issuance of licences bundled with spectrum would be given to
applicants between 3.30 pm and 4.30 pm. The announcement added that application fees running into thousands of crores of rupees would have to be paid immediately by demand draft,
along with supporting documentation.

It was made clear that LOIS would be issued to those who deposit their fees first, beating others by even a fraction of a second this was the infamous first come first served (FCFS)
system (or the way movie tickets are sold) that privileged not financial wherewithal, technical competence or experience but speed, clout and foreknowledge. Even the FCFS system was
not properly adhered to and the CAG categorically stated that those who obtained licences had prior information about how to apply for these LOIS.

A few months earlier, the cut-off date for receipt of applications for licences was suddenly brought forward to enable particular companies to jump
the queue. Here are a few examples: Swan Telecom, which had submitted its application on 2 March 2007, was given a licence with spectrum for
Delhi on 28 August 2008, while Spice Communications, which had submitted its application in August 2006, was not given spectrum for the same
service area.

The CAG found that 13 firms

that got 85 out of the 122 new
licences in 2008 did not satisfy
DoT eligibility criteria

For Maharashtra, Spice, which submitted its application on 31 August 2006, got a licence in May 2009, whereas Unitech and Videocon got their licences with spectrum much earlier in
September 2008 though the two companies had submitted their applications for licences more than a year later in September 2007. Idea Cellular (date of application: 26 June 2006) also
got a licence in May 2009 while Unitech (date of application: 24 September 2007) got its licence in September 2008.

THE STORY did not end here. Some of these companies expanded their equity bases by inducting foreign partners who paid large sums of money for the shares. Three examples: in
September 2008, Swan Telecom sold 45 percent of its shares to Etisalat (of the United Arab Emirates) for $900 million or around Rs. 4,200 crore the company had obtained its licence
for only Rs. 1,537 crore and did not possess major assets other than a piece of paper, the licence. A month later, Unitech Wireless offloaded 60 percent of its stake to Telenor (of Norway)
for Rs. 6,200 crore this company too counted among its assets only a licence for which it paid Rs. 1,651 crore in January 2008. Thereafter, Tata Teleservices sold 26 percent of its
shares to NTT DOCOMO of Japan for Rs. 13,230 crore. Thus, the DoT had undervalued spectrum by between seven and 10 times its true market worth.

This became even more evident in 2010 when the government was able to raise more than Rs. 1,11,500 crore through public auction of third generation (3G) spectrum. Raja claimed 2G
spectrum and 3G spectrum were not comparable just as basmati rice was not comparable to rice from the PDS (public distribution system). This argument is fallacious in the context of
valuation of spectrum for a simple reason: the spectrum used is the same; only the nature of services provided is different by deploying superior technology in other words, the same
spectrum can be, and is, used to provide faster data transfer and other mobile telecom services.

The CAG found that 13 companies that had received 85 out of the 122 new licences issued in 2008 did not satisfy the DoT eligibility conditions. The companies did not have the stipulated
paid-up capital at the time of application and 45 out of these 85 licences were issued to companies which failed to satisfy the condition that providing telecom services should be the main
object clause in their memoranda and articles of association.

Crossed lines (from left): Since 1999, Ram Vilas Paswan, Pramod Mahajan, Arun Shourie, Dayanidhi Maran, A Raja and Kapil Sibal have helmed the telecom ministry

The CAG also pointed out that spectrum was provided beyond the contracted 6.2 megahertz (MHZ) to nine existing operators in 2007 despite a number of applications pending for new
licences. These were Aircel, Bharti, BPL (Mumbai), the public sector undertakings Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL), Idea, Reliance, Spice
(Punjab) and Vodafone.

The biggest beneficiary of additional spectrum was BSNL (61.6 MHZ in 19 telecom circles) followed by Bharti (32.4 MHZ in 13 circles), Vodafone (19.6 MHZ in seven circles), Idea (12.6
MHZ in six circles), MTNL (124 MHZ in Delhi and Mumbai circles) and others. The total loss to the exchequer on account of allocation of additional spectrum at low prices: Rs. 36,993
crore.

In January 2008, when the DoT issued all-India licences at Rs. 1,658 crore, the price was the same as that which had existed in 2001. The CAG used two parameters for assessing the
possible presumptive or notional loss which the exchequer has suffered. In November 2007, S Tel had written first to the PM and later to Raja offering to pay Rs. 13,752 crore over 10
years for allotment of 6.2 MHZ of GSM spectrum.

The CAG took this figure as a benchmark and calculated that the government would have generated revenue of 67,364 crore by selling 122 licences, 35 licences under the dual-technology
regime and excess spectrum beyond the contracted amount of 6.2 MHZ.

Further, after taking into account the revenue that was generated after the 3G auction, the price of spectrum for the 122 licences issued can be established at Rs. 1,11,512 crore against
the Rs. 9,014 crore that the government actually earned. In addition, Rs. 40,526 crore would have been generated by selling 35 licences under the dual-use category and Rs. 13,841 crore
for excess spectrum. Hence, the CAG report estimated the total loss to the exchequer, based on the 3G auctions, at Rs. 1,76,645 crore.

Former Union Minister Pramod Mahajan is in the dock as the Supreme Court issues notice on a petition seeking an investigation into
an allegation of corruption against him.

SEBASTIAN D'SOUZA/AFP

At the launch of Reliance Infocomm $5.2-billion telecom project to offer mobile and other services in Mumbai on December 27, 2002,
Pramod Mahajan (right) looks on. Mukesh Ambani is in a videoconference with Prime Minister Atal Bihari Vajpayee (in the
background).

SENIOR Bharatiya Janata Party leader Pramod Mahajan was a Cabinet Minister in the Atal Bihari Vajpayee Ministry until January 2003 when he quit
ostensibly to serve the party full time. During his tenure as Minister, Mahajan held several portfolios, including Parliamentary Affairs, Water
Resources, Information Technology and Communications. His term in the Communications Ministry from September 2001 to January 2003 was
especially hailed for his contribution to ushering in the mobile phone revolution in the country; this period saw a phenomenal rise in the number of
mobile phone users.

Part of the explanation for Mahajan's contribution, it appears, can be found in the allegation that he connived at the violation of certain legitimate
norms and conditions by a particular business group, even though it resulted in a huge loss to the exchequer.

Limited mobility or Wireless in Local Loop (WLL) refers to a mobile service that should work only in a defined area. This is in contrast to cellular
mobility, which works all over the country. There was a long-standing policy that in the interest of revenue generation, the limited mobility and
cellular mobility services should be kept separate and distinct. The Telecom Regulatory Authority of India (TRAI) had recommended the use of a V5.2

interface using Public Switched Telephone Network (PSTN) architecture for WLL services, and in a letter on September 28, 2001, urged the
Department of Telecommunications (DoT) (under Mahajan's Ministry) to ensure that this interface was not tampered with so that mobility was
limited to the short-distance communication area in which the subscriber was registered.

A public interest petition filed in the Supreme Court by the Citizens Forum Against Corruption has alleged that Mahajan managed to circumvent this
policy of TRAI in favour of Reliance Infocomm (RIC), with the needle of suspicion pointing to a quid pro quo between Mahajan and the RIC. The
Supreme Court Bench comprising Chief Justice Y.K. Sabharwal and Justices C.K. Thakker and R.V. Raveendran issued notices to the Union of India,
the Central Bureau of Investigation (CBI) and the Central Vigilance Commission (CVC) to respond to the petition on January 2.

The DoT, in its reply to TRAI on October 17, 2001, refused to accept the recommendation of TRAI, breaking with due procedure laid down in the
TRAI Act, 1997. The DoT maintained that existing licence provisions envisaged adequate safeguards, that the matter should be allowed to rest there,
and that further correspondence might be avoided. Section 11(1) of the Act requires that in cases where the Central government comes to a prima
facie conclusion that a specific TRAI recommendation cannot be accepted or needs modifications, such recommendation shall be referred back to
TRAI for its reconsideration. Subsequent to such a reference, TRAI may within 15 days, consider the reference and return the recommendation after
due deliberation. The petition notes that such a dismissal of TRAI recommendation by the DoT was a clear violation of the statutory provision and
was conspicuous in its absence of reason.

The TRAI Chairman again wrote to the DoT on October 23, 2001, warning that anything that blurred the distinction between WLL and cellular
services would cause huge problems and create uncertainties. On February 26, 2002, RIC rolled out its WLL (mobile) network with full-fledged
mobile switching centres, totally ignoring the V5.2 restrictions. This in effect enabled RIC to offer full cellular mobility through multiple
registrations/roaming, and violated the licence agreement. RIC rolled out its service in full public gaze, with a mega advertising campaign. Mahajan
inaugurated the scheme.

The petition alleged that RIC advertised the service as a full mobility service, and could give a plethora of incentives to the subscribers because it did
not pay the licence fees chargeable from a fully mobile service provider. The petition further alleged that it was only because of this that RIC could
get five million subscribers, which was hundreds of times more than it could have got as limited mobile operators. "Reliance valuations thus shot up
to thousands of crores, something its competitors could not dream of while offering limited mobility in the same circles," it said. The petition
estimated that this caused a loss of Rs.1,100 crores to the exchequer, on the basis of the difference in the licence fee payable to the government by
a fully mobile service provider and a WLL service provider. RIC became the fifth fully mobile service provider, having entered the scene through the
WLL route, whereas the earlier four players had paid the licence fee applicable to a fully mobile service provider.

RIC merger of the WLL licence and full mobility was done during the tenure of Mahajan's successor in the Communications Ministry, Arun Shourie.
The justification given for this before the Supreme Court was that lakhs of subscribers had already been enrolled by RIC on the promise of full
mobility. Thus the illegality allowed during Mahajan's tenure was itself subsequently used as a justification for legalising it. This benefited RIC to the
tune of hundreds of crores of rupees, the petition said.

The TRAI, therefore, opined that RIC was liable to pay penal interest with effect from the date of signing the licence agreement to the date of
migrating to the unified access licence regime. This was in addition to the entry fee paid by the four cellular operators in respective circles.

In its press release dated February 15, 2005, RIC admitted that it had allotted one crore shares to Ashish Deora, through three front companies, at
Re.1 each on September 16, 2002. It stated that the shares given to Deora were from "shares that were transferred to a trust, intended for the
benefit of Reliance employees and business associates". Since the trust was authorised to sell their shares to business associates, RIC paid him
remuneration for services rendered to the company through such a transfer. RIC claimed that the trust had retained the option to buy back the
shares at par, and barred Deora to sell/pledge/deal with the shares. Since Deora was not able to fulfil his commitments, the shares were returned to
the trust, RIC added.

The petition raises a number of doubts about this transaction. It points out that Reliance Industries paid Rs.55 a share to buy 32 crore shares in RIC
for Rs.1,752 crores within six weeks of the transfer at Re.1 a share.

The allotment of cheap shares to private companies at Re.1 in contrast to the amount paid by the public listed company Reliance Industries was a
matter of public concern, the petition said.

The petition cites a series of stories carried in Asian Age, exposing the transfer of one crore shares to three front companies at Re.1 each by RIC on
September 16, 2002. It was subsequently reported in the newspaper, after an investigation, that these front companies did not exist at the
addresses given in the records. These were financed by 10 equally obscure Delhi-based companies, of which details of only six were available to the
press. All six had a common address, which was used by a chartered accountant close to Mahajan.

CITING newspaper reports, the petition suggested that there were several close connections (financial and otherwise) between the Mahajan family
and Deora. The petition cites the fact that Indian Online Network Ltd (IOL) Broadband, a company in which Deora is the director, bailed out Integral
Production Private Limited (IPPL), a company owned by the wife and son of Mahajan, by paying off Rs.5 crores due from IPPL to Prasar Bharati. The
payment was necessitated by the institution of a public interest petition in January 2001, wherein it was alleged that Mahajan had doled out favours
to IPPL through Prasar Bharati when he was the Minister for Information and Broadcasting. It was alleged that IPPL owed Rs.6.5 crores to Prasar
Bharati as the firm failed to pay the minimum guarantee of Rs.3.5 lakhs an episode produced by the firm and telecast on Doordarshan. Deora was
also a co-founder of IOL with Mahajan's son-in-law.

The petition concluded that these facts, if found to be true, were grounds for believing that the allotment of these shares by RIC to three front
companies at a markedly low price either was for the benefit of Mahajan or was made at the instance of Mahajan.

Mahajan himself did not deny the specific facts in these allegations. Instead, he gave a bland denial - as he had given earlier - that he had not taken
any decision that had favoured any particular company during his tenure as Minister.

The government, the petition said, had every opportunity to take note of the allegations and initiate a criminal investigation to get to the root of the
matter.

The petition suggested that an investigation could be launched under the Prevention of Corruption Act. Under this, a public servant is said to have
committed the offence of criminal misconduct if he "by abusing his position as a public servant, obtains for himself or for any other person any
valuable thing or pecuniary advantage".

Gravely concerned about the serious illegality and corruption involved in the case, as well as the lack of action by the authorities concerned, the
Citizens Forum Against Corruption, through one of its eminent members, Prashant Bhushan, an advocate in the Supreme Court, requested the CVC,
the CBI and the Prime Minister, through separate letters, to initiate criminal investigations against the persons concerned. The Forum approached the
Supreme Court after its reminder-letters to these authorities failed to get any response.

Frontline has found that the Forum's complaints against Mahajan and RIC were duly received by these authorities. The CVC acknowledged the
complaint and informed the Forum that it had forwarded the complaint to the CBI for necessary action. However, the CVC's web site revealed a

different picture. To a query on the status of the complaint bearing the given complaint number, (430/05/2) the web site responded that the report
on the complaint from the Chief Vigilance Officer concerned was pending. The CVC official, however, was unable to explain the apparent contradiction
between the web site's answer and the CVC's written reply to the Forum. Obviously, the CVC should have been more proactive in this case,
considering the grave nature of the allegations against Mahajan. Frontline's efforts to contact Chief Vigilance Commissioner P. Shankar for a response
were not successful.

Frontline asked the CBI whether it had found any substance in the complaint sent by the Forum and whether it warranted an investigation. The CBI
spokesperson answered that the agency had received the complaint and it was examining it.

The Prime Minister's Office (PMO) too acknowledged to Frontline the receipt of the complaint sent by the Forum on May 18, 2005. It was duly sent to
the Anti-Corruption Unit of the Grievance Redressal Cell of the PMO, where it has been gathering dust.

Despite the seriousness of the allegations, the reticence of the Congress to take action on them is disturbing. In the recent past, the Congress has
always tried to score political points over every corrupt deal involving leaders of the BJP.

New Delhi: 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 in Delhi and Tamil Nadu. So
what exactly is the Spectrum Scam that led to all this?
WHAT IS SPECTRUM SCAM?
2G licenses issued to private telecom players at throwaway prices in

2008

CAG: Spectrum scam has cost the government Rs. 1.76 lakh crore
CAG: Rules and procedures flouted while issuing licenses
Rediff.com
Twitter
NDTV Social
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Print
WHAT ARE THE CHARGES ON FORMER TELECOM MINISTER
A RAJA?
CHEAP TELECOM LICENSES

Entry fee for spectrum licenses in 2008 pegged at 2001 prices

Mobile subscriber base had shot up to 350 million in 2008 from 4
million in 2001
NO PROCEDURES FOLLOWED

Rules changed after the game had begun

Cut-off date for applications advanced by a week

Licenses issued on a first-come-first-served basis
No proper auction process followed, no bids invited
Raja ignored advice of TRAI, Law Ministry, Finance Ministry
TRAI had recommended auctioning of spectrum at market rates
FAVOURITISM, CORPORATES ENCASH PREMIUM

Unitech, Swan Telecom got licenses without any prior telecom

experience
Swan Telecom given license even though it did not meet eligibility
criteria
Swan got license for Rs. 1537 crore, sold 45% stake to Etisalat
for Rs. 4200 crore
Unitech Wireless got license for Rs. 1661 crore, sold 60% stake
for Rs. 6200 crore
All nine companies paid DoT only Rs. 10,772 crore for 2G licences

NDTV journalist Barkha Dutt went on television last night to defend the taped conversations between her and corporate lobbyist Niira Radia. But after that hour-long roundtable debate
with fellow news editors, which followed almost two weeks of hoopla on this topic, one basic thing remains unclear: What precisely is Ms. Dutt accused of doing wrong?

The allegations by her critics seem to be evolving over time, and some of the criticisms flying now seem much less shocking than when the tapes first emerged.

Lets face it: This was an exciting media scandal because the Radia tapes were billed as containing evidence that senior journalists helped install a politician (A. Raja) in the telecom
ministry who then oversaw the flawed sale of mobile-phone spectrum that deprived the country of up to $40 billion, according to a government auditor.

Outlook Magazine, in its Nov. 18 story documenting the Radia tapes, had said The transcripts suggest that journalists Vir Sanghvi and Barkha Dutt also lobbied for Raja with the
Congress party.

Open Magazine, the other outlet that published the Radia recordings, said in a Nov. 20 article that Radia relied on a number of people to pass information on to the Congress and back
to the DMK. In a way, these were the people who eventually ensured Raja was given the telecom portfolio.

That sure sounded damning. But the transcripts and audio recordings of Ms. Dutts calls with Ms. Radia turned out to reveal more generic conversations about the Congress Partys
negotiations with its coalition ally, the DMK, over various cabinet posts.

To be sure, there is some brief discussion between the two women about Mr. Rajas chances for getting the telecom post, but hes one of several officials whose chances they handicap.
And at no time in the recordings at least the ones now available to the public is Ms. Radia heard pressing Mr. Rajas individual case to Ms. Dutt, or does Ms. Dutt agree to lobby for
Mr. Raja. Indeed, Ms. Radia and Ms. Dutt are more preoccupied with the fates of other DMK officials.

Even Ms. Dutts critics, including those editors on NDTV last night, concede that theres no evidence she lobbied for Mr. Raja. So that explosive charge has sort of gone by the wayside
with little notice from Ms. Dutts peers.

What we saw in last nights TV roundtable were other, less startling claims against Ms. Dutt. Open Magazine editor Manu Joseph said the real problem is that Ms. Dutt failed to report
the story that a corporate lobbyist was trying to influence the formation of the Indian cabinet after the 2009 national elections, something he called an error of judgment of enormous
proportions.

This is a corporate person who is trying to mediate between two political parties, Mr. Joseph said. I believe that is the biggest story of the decade.

So now Ms. Dutt is being accused of being a poor journalist, not a corrupt one? And this now has nothing to do with the alleged 2G spectrum allocation scam that involved Mr. Raja?

There seems to be a constant shifting of goal posts, Ms. Dutt said in the TV debate. First the allegation was corruption, lobbying, power broking now its why dont you report the
story?

She seems to have a point there.

Also, is it really the biggest story of the decade that a company has a lobbyist who is plugged into politics the way Ms. Radia was?

Regrettable, perhaps, but surprising?

Sure, if Ms. Dutt knew that Ms. Radia separately conversed with Mr. Raja about the status of his cabinet post as we know now from the tapes she could have probed those
connections more and possibly could have uncovered details of lobbying by Tata Teleservices and other telecom companies for scarce mobile phone spectrum, a very interesting
business-meets-politics story.

But Ms. Dutt didnt have access to those other tapes, we assume. And her own discussions with Ms. Radia were about a different topic entirely the Congress Partys struggle to
assemble a ruling coalition.

The other line of criticism against Ms. Dutt is that she was used as a courier, a go-between for the Congress Party and the DMK. In the calls, she promises to pass along messages to
Congress officials about how best to resolve the cabinet standoff.

Its not clear from the recordings that she passed along those messages. She denies doing so. Open Magazine, in its Nov. 27 follow up report, took Ms. Dutt at her word, but said the
mere exchange of information between her and Ms. Radia was damning. Others may simply view those exchanges as a journalist tapping someone in the know for information on a
breaking news story.

Yet another argument says that even if Ms. Dutt didnt pass along any messages to the Congress Party, the mere fact she was called by Ms. Radia suggests that she is perceived as
being close to Congress perhaps too close to be subjective.

Why else would a lobbyist call her at the moment the Congress Party was in crisis mode?

I know of editors of certain channels who were never contacted by Ms. Radia, and I wonder why, said Dilip Padgaonkar, former editor of the Times of India. The problem with this is: we
dont know whether Ms. Radia called other journalists for gossip on the 2009 election. She obviously talked to many reporters, judging by the tapes that have been released thus far,
and there are many recordings that arent yet out in the open.

Regardless of the strength of any of these claims, the key point is that the allegations against Ms. Dutt have been all over the place. Had we known two weeks ago that she would wind
up being accused of not doing a particular story rather than engineering the appointment of a controversial minister would we have cared so much and would she have had to do a onehour TV special to defend herself?

Probably not.

Etisalat - India
In 2009 Etisalat has announced that its Indian unit, erstwhile Swan Telecom (owned by Dynamix Balwas Realty and Reliance Communications),
[34]

headquartered in Mumbai, is renamed to Etisalat DB Telecom India Pvt. Ltd Telecom Renamed Etisalat Telecom India Pvt. Ltd. The business unit has

been awarded Unified Services Access License in 15 circles - Andhra Pradesh, Delhi, Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Mumbai, Punjab,
Rajasthan, Tamil Nadu (including Chennai), Uttar Pradesh (East), Uttar Pradesh (West), Madhya Pradesh and Bihar. In April 2010 Etisalat began signal
testing in Chennai [IND 922], Delhi & NCR [IND 913], Maharashtra & Goa [IND 919], Mumbai [IND 916] and Gujarat[IND 914]. In May 2010, Etisalat was in
talks to buy 25% stake in Reliance Communications,[35] but the deal was not finalised.

In 2010, following the $39 billion 2G spectrum scam, Etisalat DB, the Indian subsidiary of the company, was stopped from buying a stake in a Chennaibased company due to objections raised by the India's home ministry(MHA). Etisalat DB was not allowed to buy back the 5.27 per cent stake held by
Chennai-based Genex Exim Ventures since the home ministry raised objections based largely on security concerns. The MHA had pointed out four issues
that needed to be resolved before allowing the company to come into Etisalat DB, a company that got scarce 2G spectrum at allegedly throwaway prices,
First, vice-chairman Shahid Usman Balwa should not be involved in the operations of the company in any capacity, because of his connections with
underworld don Dawood Ibrahim,[36] second, the MHA raised objections about the commercial relationship between the Dubai-based Etisalat Group and

Chinas Huawei. The MHA suspects, Huawei has links with Chinas Peoples Liberation Army the countrys military organisation of all land, sea, strategic
missile and air forces and has the capacity to manipulate equipment supply, third, it raised objections about Etisalats presence in Pakistan and it's
connection with Pakistan's intelligence agency ISI.[37] Etisalat owns a 26% stake in Pakistan Telecommunications and has a subscriber base of 3 million in
Afghanistan and fourth, the MHA has also expressed concerns about the telecom surveillance software Etisalat had used in a Blackberry service it had
introduced in the UAE and recommended that the company should not be allowed to offer Blackberry services in India. [38]

India
Uninor had started its mobile services on 3rd December 2009, in 8 of the 22 circles in India. Telenor has acquired a 67% equity stake in Unitech Wireless,
which has the requisite government approvals and licenses to provide mobile services pan-India. It has rolled out its network nation-wide under the brand
name Uninor.

Etisalat - India
In 2009 Etisalat has announced that its Indian unit, erstwhile Swan Telecom (owned by Dynamix Balwas Realty and Reliance Communications),
[34]

headquartered in Mumbai, is renamed to Etisalat DB Telecom India Pvt. Ltd Telecom Renamed Etisalat Telecom India Pvt. Ltd. The business unit has

been awarded Unified Services Access License in 15 circles - Andhra Pradesh, Delhi, Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Mumbai, Punjab,
Rajasthan, Tamil Nadu (including Chennai), Uttar Pradesh (East), Uttar Pradesh (West), Madhya Pradesh and Bihar. In April 2010 Etisalat began signal
testing in Chennai [IND 922], Delhi & NCR [IND 913], Maharashtra & Goa [IND 919], Mumbai [IND 916] and Gujarat[IND 914]. In May 2010, Etisalat was in
talks to buy 25% stake in Reliance Communications,[35] but the deal was not finalised.

In 2010, following the $39 billion 2G spectrum scam, Etisalat DB, the Indian subsidiary of the company, was stopped from buying a stake in a Chennaibased company due to objections raised by the India's home ministry(MHA). Etisalat DB was not allowed to buy back the 5.27 per cent stake held by
Chennai-based Genex Exim Ventures since the home ministry raised objections based largely on security concerns. The MHA had pointed out four issues
that needed to be resolved before allowing the company to come into Etisalat DB, a company that got scarce 2G spectrum at allegedly throwaway prices,
First, vice-chairman Shahid Usman Balwa should not be involved in the operations of the company in any capacity, because of his connections with
underworld don Dawood Ibrahim,[36] second, the MHA raised objections about the commercial relationship between the Dubai-based Etisalat Group and
Chinas Huawei. The MHA suspects, Huawei has links with Chinas Peoples Liberation Army the countrys military organisation of all land, sea, strategic
missile and air forces and has the capacity to manipulate equipment supply, third, it raised objections about Etisalats presence in Pakistan and it's
connection with Pakistan's intelligence agency ISI.[37] Etisalat owns a 26% stake in Pakistan Telecommunications and has a subscriber base of 3 million in

Afghanistan and fourth, the MHA has also expressed concerns about the telecom surveillance software Etisalat had used in a Blackberry service it had
introduced in the UAE and recommended that the company should not be allowed to offer Blackberry services in India. [38]

Communications Minister Kapil Sibal on Friday said the methodology adopted by the official
auditor was "utterly erroneous" while arriving at the estimate of Rs 1.76 lakh crore ($40 billion)
as the loss in awarding telecom airwaves in 2008.
Sibal also slammed the opposition for disrupting the entire winter session of parliament and
spreading what he termed as "utter falsehood" to the people of the country, having
themselves framed the policy for award of airwaves, or spectrum, during their tenure.
"Though we respect the exercise of that constitutional authority's power, we do believe the
exercise was flawed with serious errors, which has allowed the opposition to spread utter
falsehood to the people of the country," he told a press conference here.
His reference was to the report of the Comptroller and Auditor General of India which said the
government's policy on spectrum allocation for second generation (2G) telecom services had
caused a loss of between $12.8 billion and $40 billion to the exchequer.
"The figure of Rs 1.76 lakh crore is so utterly erroneous that I would have thought that a
complicated and complex issue like this should not have led to the conclusion of this
magnitude, which has embarrassed the government and the nation," he said.
"The loss is Zero, nil," he said, refuting the audit estimate point-by-point.
"The Comptroller and Auditor General has done injustice to itself, and the opposition is doing
injustice to the aam aadmi," he said. "We believe that the exercise was fraught with errors.
We object to that," he said.
"If there is proof of any wrongdoing or criminal offence, the law will take its course," the
minister, who is a lawyer by profession, said adding: "We are not here to protect or defend
anyone."

Sibal's predecessor A. Raja was forced to resign in November after the official auditor indicted
him in the spectrum allocation saga. The saga also blocked legislative business with the
opposition unrelenting in its demand for a parliamentary probe.
Sibal said as per the 10th Five Year Plan document, that was drafted during the National
Democratic Alliance (NDA) regime between 1998 and 2004, the growth of telecom sector was
more important than revenues from the award of spectrum.
"Today they say revenue is important," he said, adding the United Progressive Alliance (UPA)
government under Prime Minister Manmohan Singh, since it came to power in May 2004, has
only been following the policy set by the previous regime.
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he 77-page report of the CAG tabled in Parliament said due diligence was not followed and even the recommendations of the telecom regulator TRAI were "not followed in spirit".

The report said the "presumptive" loss caused to the exchequer through spectrum allocation to 122 licencees and 35 dual technology licences in 2007-08 was Rs 1,76,645 crore. It pegged
the figures on the basis of 3G auction held earlier this year in which the government mopped up over Rs 67,000 crore (Rs 670 billion).

It said there was an "imperative need to fix responsibility and enforce accountability for the lapses highlighted in the audit report."

Elaborating on the lapses and irregularities, the government auditor said that Prime Minister Manmohan Singh had "stressed on the need for a fair and transparent allocation of spectrum"
while the ministry of finance had sought for the decision regarding spectrum pricing to be considered by an EGoM (Empowered Group of Ministers).

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"B

More

rushing aside their concerns and advices, the Department of Telecommunications, in 2008, proceeded to issue 122 new licences for 2G spectrum at 2001 prices, by flouting every

canon of financial propriety, rules and procedures," the CAG said.

The DoT also did not do the requisite due diligence in the examination of the applications submitted for the licences, leading to the grant of 85 out of 122 licences to the "ineligible
applicants" as all these firms did not have stipulated paid-up capital at the time of application.

Further 45 out of 85 licencees were issued to companies which failed to satisfy conditions of main object clause in the memorandum of Association (MoA), it said.

The CAG said the process of giving dual technology licences to leading telecom firms including Reliance Communications and Tata Teleservices "lacked transparency and fairness," and
equal opportunity was denied to other similarly placed operators who could apply for use of dual technology only after formal announcement of the policy.

Kapil Sibal has now thought fit not only to pick up all the arguments given by A. Raja for giving 2G license and spectrum at throw-away prices to favoured corporates houses, but has
also added a few of his own.
Thus, if Unitech and Swan made thousands of crores by selling a part of their equity within months of securing the 2G licenses, we should not complain as this somehow has also helped
the consumer. Further, according to the Minister, the CAG is entirely devoid of arithmetic it cannot distinguish between 1.76 lakh crore and the number zero; if it only knew its
numbers according to Kapil Sibal -- they would have known that the exchequer has really suffered no loss. In other words, there was no scam, no undervaluation of the spectrum and
no loss to the exchequer, only some minor procedural lapses.
Some of the arguments produced by Sibal are not new. Raja had been advancing them ad naseum and they have been refuted a number of times. It is unfortunate that with a new
Minister of Telecom, we now have to refute them once again. But some of Sibal's arguments are novel, particularly his arithmetic and therefore does call for new refutation. Let us
take them first.
In his arithmetic attack on the CAG, Sibal starts by saying that CAG used the 3G license prices which were auctioned in 2010, ergo it cannot be used for 2008, when the 2G licenses
were awarded.
It is interesting that Sibal is arguing that 2010 prices cannot be used for 2008 as the value of money has changed in this two years, as also the subscriber base and the annual revenue.
However, he seems to have no such problem in arguing that 2001 license prices be used for 2008. This, is in spite of there being only 4 million cellular subscribers in 2001 as against
a 75 times increase in subscriber base by 2008 and a 7 year gap!
The CAG computed the loss by estimating the market price of the 2G spectrum. This market price was estimated in different ways by the offer of S Tel for a pan-India license, the
sale of equity by Unitech, and Tata Teleservices and by comparing it to the 3G auction price. This gave the figures of Rs. 57,600 crore to 1.76 lakh crore -- depending on the method
adopted. The reason that CAG did not differentiate between 2010 and 2008 prices is quite simple the market prices in 2007 and early 2008 would have been higher than 2010 as the
financial crash took place later and the markets had not fully recovered even in 2010.
CAG also stated that an alternate method would have been to choose econometric models for projecting the 2001 prices to 2008 and then computing the losses. It chose the market
prices as the basis because it felt that this was a better indicator than projecting the 2001 prices to 2008. Incidentally, the methodology that Sibal is suggesting of using time value of
money and increase of subscriber base and revenue would be a form of econometric model exercise. Though CAG did not do this, TRAI has done this exercise. In its Recommendations
on Spectrum Management and Licensing Framework dated11th May, 2010, TRAI estimated the price of license in 2009 using just the time vale of money. With a standard discounted
cash flow, TRAI calculated that based on a 15% discounting rate, the 2001 price of 1658 crore would have been worth 5074 crore. Taking the Adjusted Growth Rate per MHz, TRAI also
computed a figure of 8,285 crore for the 2G license or 5 times the amount that the Government collected. If indeed Sibal felt that this was a better method to compute loss to the
exchequer, why did he not suggest any of these figures for computing the loss? Why claim that actually, there has been no undervaluation of the spectrum at all?
TRAI however, like CAG, finally suggested using the 3G license fee price for fixing all future license fees. The reason given was the same as CAG this is the price discovered through a
market mechanism and is a better indicator of price.
Sibal has argued that the efficiency of 3G spectrum is more than 2G spectrum and as it will be used for high value added services, it should have a different price. This is the same as
Raja's BPL rice as 2G and basmati rice as 3G. In its 11th May recommendations, clauses 3.80 to 3.82, TRAI has discussed this in great details. It has analysed why the efficiency of the 2G
and 3G spectrum is not very different and has shown that that 2G spectrum should really be regarded as 2.75G with current technologies in terms of efficiency. It has also pointed out
that it is not just efficiency of the spectrum but also the size of the market and supply-demand position that determines the price of the spectrum. Obviously, the existing voice
market is much the larger market and will be a major determinant in deciding the price of the spectrum. Taking all this into account, TRAI's recommendations were:
The Authority, therefore, recommends that the 3G prices be adopted as the Current price of spectrum in the 1800 MHz band.
(Clause 3.82, page 189, Recommendations on Spectrum Management and Licensing Framework dated11th May, 2010)
The last point that Sibal raised was with respect to the quantum of frequency allotted to the new 2G licensees. He claimed that since only 4.4 MHz has been given as start-up
frequency to new 2G licensees, therefore the amount computed as loss should not have been based on 6.2 MHz as CAG has done. Unfortunately for Sibal, he himself has queered his
case by stating that additional charges for spectrum will be levied only beyond 6.2 MHz. Obviously, the contracted amount as per the 2G license -- is 6.2 MHz, even though only 4.4
MHz is being given initially.

TRAI in its recommendations of 11th May quoted above has also dealt with this issue. In its Executive Summary, it notes After due examination of the provisions of licences issued from
time to time and related factors, the Authority concludes that the committed spectrum is 6.2 MHz in respect of GSM and 5 MHz in respect of CDMA.
The argument that the consumers have benefited from the low license fees is factually untrue. If the companies receiving the licenses had not resold it to others (what DoT now calls
dilution of equity) at 6/7 times the price that it had itself bought the licenses, there might have been some merit in this argument. However, once sale of equity was allowed by Raja
by changing the Merger and Acquisitions Guideline, all that has happened that instead of a public auction held by DoT, the licensees have held private auctions. The impact on the
consumer is same, irrespective on who has held the auction.
This is one of the points that the Left had brought repeatedly that if keeping the price to the consumer low was the objective, there should have been a lock-in so that buyers cannot
buy cheap and dear by holding private auctions. Instead of a lock-in, even the existing guidelines on M&A and the TRAI recommendations of not allowing any change of equity before
the roll-out obligations are met, were changed by the then Telecom Minister, A Raja.
The issue of which corporate house was favoured over which one is certainly important but not the major part of the 2G scam. The key issue is that a scarce national resource was
given away at a fraction of the price. No amount of arithmetic jugglery can take away this simple fact. The reason that Sibal is unwilling to accept this is equally simple. Making a gift
of natural resources from spectrum to mineral wealth -- to the capitalist class is the hall mark of this neo-liebral order. This is what Sibal wants to continue.
The neo-liberal order in India has been different from, for example, the regime of Hugo Chazez in Venezula and Lula in Brazil in the way it has used its natural resources. In Venezuela
and Brazil, the oil wealth of the country was used to make large scale resource transfers to the poor and building up a social infrastructure. In India, the mineral, oil and other
resources like spectrum are being looted by big business with full co-operation of the Government.
While people in the country are highly exercised by the colossal nature of all these scams and would like the Government Ministers and bureaucrats who are a party to the loot be
brought to book, the question is which class benefits from such scams? Obviously, giving away natural resources cheap is nothing but a huge subsidy to the rich or the capitalist class.
What we are now seeing is the use of natural resources not to develop the country's economy but exclusively to develop the capitalist class. This is why a Sibal is not willing to accept
that there is a loss by giving away spectrum. Procedural lapses yes, recovery of the loss from the capitalist class is a big no, even if the rules of arithmetic have to be changed. This is
the Manmohan Singh's path of development for the Indian economy. Subsidise the rich and tax the poor the mantra of this Government.