October 10, 2011

life in financial markets: (part 1) indian telecom 2g spectrum scam cases have complexities

This is the first part in a series on the Indian telecom sector's ongoing court cases in the 2G spectrum scam.

The article below is taken from a website called 2gscam.co.in and I am not immediately able to make up my mind about whether the contents are farily reliable or accurate. Nevertheless, the article taken from the website and presented below seems to prima-facie provide fairly insightful analysis of one aspect of the scam.

Here is the article:


The Indian Telecom Sector – Was it Ever 'Clean'?

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 .
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.
A point to note here, is that unlike the case of Sukh Ram, who was released on bail, inspite of being sentenced, in the the current situation, the ‘accused’ are not being released on bail ,even though they have not been proven ‘guilty’.
During the BJP led NDA government, there was a major controversy when telecom companies were allowed to move from a licensing regime to a revenue-sharing one.
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.

Now : Over to the 2G Spectrum Scam. What is it in a nutshell?

The accusation by CBI is that millions of dollars were paid in bribes to ensure favors for certain firms in 2007-08 when the Telecom Ministry issued 122 new licenses to offer mobile phone services in the world’s fastest growing telecom market.
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.
Also, it is relevant to note that there is communication on record between him & the Prime Minister - Mr. Manmohan Singh, that proves that the Government was indeed aware & had also given him the go ahead to allocate licenses in a First Come First Serve manner. Even Mr. Chidambaram & Mr. Pranab Mukerjee were all aware of the same, as some communication material proves.
Shockingly, now, that this allocation basis of 2G spectrum has become controversial, the Congress is passing the buck to the DMK.
First Steps being taken towards Unearthing the Actual 2G Scam:
Five months into the preliminary inquiry (PE) relating to the allocation of 2G spectrum during 2001-07, finally, the Central Bureau of Investigation is now scrutinising documents, looking at the telecom policy and how the policy was implemented by successive Telecom Ministers during that time.
While 42 licences, including for basic services and Unified Access Service (UAS), were issued during 2001, as many as 51 licences were given during 2004-06. Telecom Ministers during 2001-07 were the late Pramod Mahajan and Arun Shourie during the NDA regime and Dayanidhi Maran and Mr. Raja were in charge of the Telecom portfolio from 2004 onwards when the Congress-led United Progressive Alliance assumed power.

What are the charges levied by CAG on the Telecom Ministry?

The CAG has 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 license and
(c) By allocating more spectrum to companies than what their licenses specified, the total loss to the country could be as much as Rs. 30,984.55 crore.

A tabular listing of all the companies involved in the loss to the country of Rs 30,984.55 crore as per CAG & CBI:

Company Licenses Issued1 Share(Rs. in Crores) % Share Named in Charge-sheet
Tata 3 CDMA; 19 GSM (Dual)        4,930.66 15% NO
Unitech Wireless 22 GSM       4,441.05 14% Yes
Datacom 21 GSM        4,239.19 14% NO
Loop 21 GSM        4,239.19 14% NO
Reliance 14 GSM (Dual)        3,379.58 11% NO
Shyam 21 CDMA; 1 GSM (Dual)        2,650.03 9% NO
Swan 13 GSM        2,624.26 8% Yes
Idea 9 GSM        1,816.80 6% NO
S-Tel 6 GSM        1,211.20 4% NO
Spice 4 GSM           807.46 3% NO
Allianz 2 GSM           403.73 1% NO
HFCL 1 GSM (Dual)           241.40 1% NO
Total Amount (Rs./Crores)      30,984.552 100%   

1Source: As per CAG Report 2010, DoT issued 122 New Licenses and 35 Dual Technology Licenses in 2008. Number of licenses are also mentioned in CBI 1st Chargesheet of 2.4.2011 on Page 56 and Page 42.  
2Source: CBI 1st Chargesheet of 2.4.2011 (Page 60): New Licenses (Rs.22,535.6 crs) + Dual Technology Licenses (Rs.8,448.95 crs) = Total Amount (Rs.30,984.55 crs). CDMA license entitles 2.5MHz spectrum and GSM license entitles 4.4MHz spectrum. Amount of New Licenses (Rs.22,535.6 crs) and Dual Technology Licenses (Rs.8,448.95 crs) divided among companies in proportion of their spectrum entitlement based on number of licenses issued to them.
Unfortunately, due to the selective wheels of justice, it is a fact that:
Percentage share of Companies charge-sheeted – 22%
Percentage share of Companies not charge-sheeted – 78%
When will the rest of the companies get chargesheeted? Or, are they going to get away scot free now?

Icing on the Cake: Additional Spectrum Scam Involving the Existing Operators in 2007 which is being ignored Thus Far:

The CAG has also revealed that spectrum was provided in addition of the contracted 6.2 megahertz (MHZ) to nine existing operators in 2007 inspite of the fact that a number of applications were pending for new licenses.
These existing operators 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.
Note: The total loss to the exchequer on account of allocation of additional spectrum at low prices: Rs. 36,993 crore!!!
So, when will these existing operator companies get chargesheeted by CBI?

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