2G Spectrum Scam

Spectrum Details
1. What is Spectrum 2. Natural resource 3. Underutilisation

Spectrum Details
1. Radio freq used for various forms of communications 2. Space, FM radio, mobile communications, aeronautical satellite services etc 3. Inadequate to service 700 million plus consumers on mobile networks
1. Call drops 2. Missed sms

Spectrum Details
1. International Telecommunications Union 2. Country specific allocations 3. Mobile handsets manufactured across the world operate on GSM 900-1800 bands 4. India NFAP National Freq Allocation Plan

Spectrum Details
0-87.5 MHz Marine & Aeronautics 87.5 108 Radio 109 173 Satellite 174 230 not allocated as of now 230 450 Satellite and Outdoor satellite communication vans 6. 450 585 not allocated 7. 585 698 TV broadcasting 1. 2. 3. 4. 5.

Spectrum Details
1. 2. 3. 4. 698 806 not allocated 806 960 GSM & CDMA communications 960 1710 Aeronautical 1710 1930 GSM

Spectrum Details
1. Minimum spectrum needed to launch GSM service = 4.4 MHz 2. In 2002 Govt began an additional spectrum allocation process linked to subscriber base. 3. Defence was holding about 65 MHz and agreed in 2010 that it will sell 45 MHz. 4. Out of this 45, 25 MHz is earmarked for 3G services

Historical Overview
1. Pramod Mahajan BJP
1. License fee while awarding licenses vs revenue sharing (severely criticised). Reliance gained.

2. Arun Shourie BJP

1. Unified Access License UAL 2. Fixed Line operators went WLL. Reliance and TATA Teleservices gained.

3. A Raja DMK 4. Kapil Sibal Congress

Facts on 2G allocation
1. Jan 2008. Announcement was released on DoT website LOIs for licences with spectrum will be issued between 3:30 and 4:40 p.m. 2. First Come first serve basis 3. Application fee to receive these LOIs ran into thousands of crores and had to be paid via demand draft.

Summary
1. 122 licenses were sold to a total of 15 players in that limited time window 2. 13 Companies in 85 license case did not satisfy DoT eligibility criteria 3. 45 / 85 were issued to those whose main business line was not Telecom (as per MoA & AoA) 4. MOCIT received 10772 crore 5. Price base used for the auction was 2001 price.

New and questionable players

1. Unitech real estate company with no exposure in
Telecom applied and got spectrum. Cost 1661 Crore. Sold 60% stake soon to Telenor (Norways MNC Telecom company) Indian Brand name UNINOR at Rs 6200 crore.

2. Swan Telecom totally new company with no

exposure in Telecom applied and got spectrum. Cost 1537 Crore. Sold 45% stake soon to Etisalat (UAEs MNC Telecom company) at Rs 4200 crore.

3. TATA Teleservices 26 % offloaded to DOCOMO

for 13230 core

CAG report loss assessment

1. Underpricing 2G spectrum auction pricing by using 2001 prices instead of market prices 2. Allowing companies to use GSM and CDMA services on the same license + spectrum allocation 3. Allocating more spectrum to companies as compared to what their licenses specified Total loss to the govt revenue from the private bodies has been put at Rs 176645 crore

Base Price
CAG in its report is using the price of 3G auction (of 2010) applying it to the auction of 2G that happened in 2008- and then comparing the price used actually (2001 prices). 2G vs 3G. Isnt 2G closer to 3G these days?

Base Price
How is market price determined? Why is there a stink on the 2001 price logic Did objectives of government change mass penetration versus revenue generation from the sector.

CAG Price calculation

In Jan 2008 DoT was offering an All India License at Rs 1658 crores (same as it wanted in 2001!) In Nov 2007, Shyam Telecom had approached Raja & PM stating willingness to pay 13752 crore for an All India License.

CAG Price calculation

As per this benchmark of prevailing price, 122 licenses (35 under Dual use GSM + CDMA) would have generated 102498 crore.

Overallocation
Licenses were issued for 6.2 MHz CAG report more spectrum allocated as compared to the license issued
BSNL (61.6 MHz in 19 circles) Bharti (32.4 MHz in 13 circles) Vodafone (19.6 MHz in 7 circles) Etc Loss of this additional spectrum (at 2010 fee) pegged at 36993 crore.

DUAL use?
GSM and CDMA both were used by the players under one license in one circle Reliance, TATA Teleservices 35 licenses were used like this in reality As per CAG these dual usage licenses could have been priced higher and loss of not collecting this revenue is pegged at 37154 crore.

All components
New Licenses (122) Rs. 1,02,498 crores Dual technology (35 licenses) Rs.37,154 crores Spectrum beyond contracted quantity of 6.2 MHz Rs.36,993 crores Total loss Rs.1,76,645 crores

DoT VS TRAI
Origins Scope An impression that TRAI recommendations are binding is entirely false. TRAI Act allows DoT to reject, modify or accept recommendations subject to procedure laid down under TRAI Act.

Sibal vs CAG
Sibals comments
CAG used wrong price Loss is notional, govt could not have earned that much extra Purpose of auctions have been changing of late and it is unfair to use 3G auction as a standard In Public interest if more players get license the sector does well, Revenue of Govt was not the objective. As per 5 year plan policy documents, Revenue maximisation was not an objective Precedents were being followed, as was happening in NDA rule, it continued in UPA also If other crucial sectors get subsidy, what is wrong with Telecom sector getting some (by way of offering licenses at reduced fee)

Sibals arithmetic
Government has not made up its mind on the charge for spectrum beyond 6.2 MHz, therefore, loss of Rs.36,993 crores needs to be excluded as of now. The remaining loss of Rs.1,39,652 crores is only Rs.99,000 crores since government has only given 4.4MHz spectrum, while CAG has wrongly calculated loss based on 6.2 MHz. Since the 3G auctions were held in 2010, but 2G licenses were given in 2008, the timevalue of loss of spectrum is not Rs.99,000 crores, but Rs.56,000crores. Since spectrum was given late and not in 2008, license term is 19, not 20 years, loss is down to Rs.53,000 crores. Since 3G spectrum is three times more efficient than 2G, the loss is further down to Rs.17,755crores. Since 4.4MHz is free with UALlicense anyway, the actual loss is zero.

CAG report, TRAI and other oppositions to Sibals point of view

TRAI recommendations, 11May, 2010, Section 3.99, states:
Accordingly, the Authority recommends that all the service providers having spectrum beyond the contracted quantum should pay excess spectrum charges at the Current Price, pro-rated for the period of the remaining validity of their license subject to a minimum of seven years.

CAG report, TRAI and other oppositions to Sibals point of view

TRAI Recommendations of 11 May, 2010 (Section 2.47) concludes: Authority is clearly of the view that contracted spectrum for all access licenses issued in or after 2001 is 6.2 MHz. The license entitlement is for 6.2MHz. That 4.4MHz has been given initially, does not mean that the entitlement is limited to 4.4MHz. In most cases, it is given in phases4.4MHz, then 1.8MHz and so on.

CAG report, TRAI and other oppositions to Sibals point of view

MoCIT thinks time value of money works between 2008 and 2010, but fails between 2001 and 2008.

CAG report, TRAI and other oppositions to Sibals point of view

CAG report, TRAI and other oppositions to Sibals point of view

Did the new players finally add to the sector?