news from the cpi(m)
December 19, 2008
Press Release
Communications Minister Misleading Parliament
The Minister of Communications Shri A. Raja in a reply to a question in Parliament (Lok Sabha Starred Question # 232, 15.12.2008) has claimed that neither the Central Vigilance Commission (CVC) nor the Telecom Regulatory Authority of India (TRAI) have raised any objection to the allocation of spectrum to 2G Telecom Service Providers on a 'first come first served' basis. This is nothing but an attempt to mislead the Parliament, obfuscate matters and conceal the truth.
In a letter dated 15.11.2008, the CVC had expressed dissatisfaction over an earlier response of the Department of Telecom (DoT) to the Commission's queries on the policy for the allocation of spectrum (Annex A). The CVC had asked for specific clarifications on various issues related to spectrum allocation, including licensees like Swan selling their equity at high values to Etisalat without making any progress in operationalising mobile telephony, terming this as a "highly unethical practise".
As far as the TRAI is concerned, its Recommendations of October 2003 clearly state that new licenses have to be allocated through a multi-stage auction process. The DoT has violated this recommendation while allocating new licenses to 2G Telecom Service Providers on a 'first come first served' basis. The TRAI had in fact repeatedly warned the DoT; both before the Letters of Intent (LoIs) were issued, as well as after 120 LoIs were issued on 10.01.2008 but before licenses were signed; about the legal provisions relating to implementing TRAI recommendations. In a letter to the DoT on 14.01.2008 the TRAI Chairman pointed out that its recommendations cannot be implemented either in bits and pieces or while ignoring interlinkages between various recommendations (Annex B). In the "Recommendations on Review of license terms and conditions and capping of number of access providers" made on 28.08.2007, the TRAI had stated:
The allocation of spectrum is after the payment of entry fee and grant of license. The entry fee as it exists today is, in fact, a result of the price discovered through a markets based mechanism applicable for the grant of license to the 4th cellular operator. In today's dynamism and unprecedented growth of telecom sector, the entry fee determined then is also not the realistic price for obtaining a license. Perhaps, it needs to be reassessed through a market mechanism. (Para 2.73)
[http://www.trai.gov.in/WriteReadData/trai/upload/Recommendations/73/recommen29aug07.pdf]
CPI (M)'s Forewarning of a Scam-in-the-Making
The Minister of Communications willfully disregarded the TRAI recommendation and allocated new licenses in an arbitrary manner, which has resulted in an enormous loss to the national exchequer. Sitaram Yechury, the leader of the CPI (M) group in Rajya Sabha, had written to the Prime Minister in 29.2.2008 to forewarn the Government on the impropriety of issuing new licenses under 2G spectrum at throwaway prices on a 'first come first served' basis (Annex C). It was mentioned in that letter that the market price of the spectrum, which was being allocated along with these licenses, was 6 to 7 times higher than the price paid by these new licensees. The 2001 price paid was clearly outdated since it was the outcome of a multi-stage auction held 7 years back, when there were only 4 million subscribers in India as against 300 million subscribers now.
CPI (M)'s warnings have now been confirmed with the two deals struck by two of the licensees, Swan Telecom (September 2008) and Unitech (October 2008), with two foreign telecom companies, Etisalat and Telenor respectively, at prices that were 5.7 and 7 times more than what they had paid for their licenses. Thus, instead of allocating the new licenses on the basis of a public auction, the DoT manipulated norms to allocate licenses to favoured private players and facilitate the private auction of spectrum at a later date.
Sinister Moves leading to Enormous Revenue Loss
The DoT had adopted an extremely sinister method in eliminating competition while granting licenses to the favoured few. The cut-off date for receiving applications, which was announced on 24.09.07 to be 1st October 2007, was arbitrarily changed to 25th September 2007 on 10.01.08 (Annex D). It is obvious that this was done in order to exclude a large number of applicants and effectively capping the number of applicants to the favoured few. All this was done violating the TRAI recommendation that no cap be placed on the number of service providers in any service area.
After issuing licenses in such a sinister manner, the DoT went ahead to announce its Merger guidelines on 22.04.2008 (Annex E). Strangely, while a three year lock-in period from the effective date of the licenses was laid down in case of 'Mergers', 'Acquisitions' were deliberately left outside the purview of these guidelines. This paved the way for licensees like Swan and Unitech to sell their stakes at a huge premium in September/October 2008, which reflected the actual market value.
The estimated loss to the national exchequer, on account of undervaluation of new licenses, amount to nearly Rs. 60,000 crore (See Table in Appendix). If one adds to this the loss to the exchequer on account of undervaluation of crossover licenses for existing CDMA operators and not charging market value of surplus spectrum from existing GSM operators, each of which amounts to Rs. 20,000 crore approximately, the telecom scam presided over by the Minister of Communications would worth nearly one lakh crore!
Gross Wrongdoings
The CPI (M) is in possession of an internal note of the DoT on the processing of pending application for licenses under 2G spectrum, signed by the then Secretary, Telecom Shri D. S. Mathur and Member, Finance Smt. Manju Madhavan (Annex F). It clearly appears from the document that the alternative of auctioning of new licenses, in keeping with the TRAI recommendation, was very much on the Minister's table. The DoT note states:
Existing criteria of entry fee was based on the entry fee paid by the fourth cellular operator, which was decided based on 3 stage informed ascending financial bidding at that time (year 2001). The Indian telecom sector has witnessed tremendous growth due to the continued liberalisation and has emerged as the fastest growing telecom network in the world. Therefore, the bidding/auction process will establish the entry fee based on current market perception.
Why did not the Minister of Communications opt for the auction route, despite this proposal being on his table, and instead went about allocating licenses on an arbitrary 'first come first served' basis? Not only does the underlying impropriety and wrongdoings involved become clear from this, but the responsibility also falls squarely on the Minister himself.
The CPI (M) is also in possession of a letter written by the then Finance Secretary, GoI, Shri D. Subbarao (currently RBI Governor) to the Secretary, Telecom on 22.11.2007, questioning how the crossover license fee of Rs. 1600 crore for CDMA operators was arrived at in 2007 "without any indexation, let alone current valuation", when that rate was "determined as far back as in 2001" (Annex G). This clearly shows that the Finance Ministry was fully in the know of the impropriety involved in the case.
Institute Immediate Probe
While the Minister of Communications continues to mislead the Parliament and the larger public by obfuscating matters, what is more disturbing is the deafening silence on the part of the Prime Minister on this issue. That there has been an enormous loss to the national exchequer due to the arbitrary allocation of 2G licenses is incontrovertible. Responsibility for the huge loss to the national exchequer must be fixed and concrete steps undertaken to recover the amount from the beneficiaries of the scam.
In the light of the material being made public, the CPI (M) demands immediate action on the part of the Prime Minister in this regard. Failure to initiate probe into the matter and fix responsibility, undertake steps to retrieve the lost revenues and review the entire gamut of spectrum allocation policies would make the entire Cabinet complicit with this gigantic scam.
APPENDIX
Value of New 2G Licenses
Sl No
Name
Number of Circles
Amount Paid
(Rs. Crore)
Market Value
(Rs. Crore)
Difference
(Rs. Crore)
1
Unitech Wireless Ltd.
22
1651
10731.5
9080.5
2
Swan Telecom
14
1537.01
9990.565
8453.555
3
Datacom Solutions
22
1651
10731.5
9080.5
4
S Tel
22
1651
10731.5
9080.5
5
Shyam Telelink
22
1651
10731.5
9080.5
6
Loop Telecom
21
1454.91
9456.915
8002.005
7
Spice
4
484.17
3147.105
2662.935
8
Idea Cellular Ltd.
7
683.59
4443.335
3759.745
9
Tata Teleservices
3
9
58.5
49.5
Total
10,772.68
70,022.42
59,249.74
Note: 1. Market Value is assumed 6.5 times the license fees based on sale of shares by Unitech and Swan Telecom; 2. Unitech Wireless has applied for license in the names of Unitech Infrastructures Pvt. Ltd., Unitech Builders & Estates Pvt. Ltd., Aska Projects Ltd., Nahan Properties Pvt. Ltd., Hudson Properties Ltd., Volga Properties Pvt. Ltd., Adonis Projects Pvt. Ltd. and Azare Properties Ltd
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