The many strands of spectrum scam

The many strands of spectrum scam

Mega scandal: It dates back to 2008 when DoT allotted airwaves in the form of licences

The Spectrum controversy dates back to 2008 when the Department of Telecom (DoT), under the stewardship of then Telecom Minister A Raja, allotted airwaves in the form of telecom licences for second generation (2G) mobile phone services.

The allotment took place at a time when the telecom sector was booming and cell phone connectons were burgeoning expontentially — at the rate of over one crore a month. Hoping to ride on the crest of this unprecedented wave, the telecom companies jostled to grab a piece of the spectrum pie.

In January 2008, Raja allotted 85 licences to 12 companies of the total 122 licences, on the basis of a dubious first-come-first-served criteria. At that time, the minister brushed aside the outcry by several big telecom players that the tendering process should have been pursued to provide a level-playing field to the competing companies.

The scam was exposed when a new player, Swan Telecom, “bought” licences for 13 circles, along with the necessary spectrum, for $340 million but managed to sell 45 per cent of its stake in the company to UAE’s Etisalat for $900 million. This swelled its valuation to $2 billion without a single subscriber or even a tower. Another new player, Unitech, paid $365 million as licence fee but sold 60 per cent stake to Norway’s Talenor for $1.36 billion, taking its valuation to nearly $2 billion, despite not having a single subscriber.

Interestingly, even the ‘first-come-first-served policy’ was also tweaked to favour some selected firms. The Comptroller and Auditor General (CAG) has pointed out that 85 of the 122 licences were issued to companies which did not meet the required criterion of net worth etc.

While announcing the new licences, the DoT gave 15 days to firms to complete all formalities before they got a Letter of Intent – furnishing bank guarantees of Rs 1,651 crore for a pan-India licence and a performance bank guarantee of Rs 800 crore. The date of payment did not decide the company position in the first-come-first-served (FCFS) queue.

This is where Raja stepped in, changing the rules, while establishing that the date of payment would determine the position in the queue. So, firms that learnt of this had their bank guarantees ready. On January 10, 2008, the DoT issued a press release stating its intent to provide Letters of Intent (LoIs) to applicants who had applied within the September 25, 2007, deadline. Later, the same day, the DoT issued another press release asking all applicants to authorise one representative to collect LoIs.

Finally, the 15 days’ time given lost relevance and it reduced to half a day and the one who paid first would be treated first. The day saw a virtual melee in DoT office and finally Swan made the payment first followed by Unitech.  

The CAG put the revenue loss to exchequer - a result of DoT not following the auction route - at up to Rs 1.40 lakh crore, in addition to another Rs 36,700 crore on allocation of spectrum beyond contractual limit to existing nine operators.

The extent of scam was put in perspective after the Telecom Ministry allotted the 3G spectrum through action in 2010  and it garnered Rs 67,718.95 crore revenue to the state exchequer.

Raja’s stand

Ever since the scam came to light, Raja continued to maintain that he had done nothing wrong as he kept the Prime Minister’s Office in the loop and that no step was taken without its permission. He has said he has not deviated from the policy adopted by earlier telecom ministers – Pramod Mahajan and Arun Shourie. 

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