How did the CAG arrive at this figure of 1.76 lakh crore?
One of the bidders, STel, offered to the government Rs 13,752 crore for 6.2 MHz of spectrum as compared to the Rs 1,651 crore for 4.4 MHz of spectrum that it was charging. Based on this, CAG said the government could have got Rs 65,725 core as compared to the Rs 9,013 crore it did.
Based on the money got in the 3G auctions, CAG said the government could have got Rs 111,511 crore. If spectrum for dual technology firms (RComm and Tata Tele) was also auctioned, it would have fetched Rs 37,153 crore and, if the government charges incumbent operators for holding spectrum beyond 6.2 Mhz, it would have gained another Rs 36,729 crore.
But is it right to compare 2G and 3G spectrum? Raja says it is like comparing PDS rice with basmati.
The price of spectrum, as for anything, depends upon demand and supply. Since there was a shortage of spectrum, firms would pay higher prices. More important, it is the government that decides whether spectrum is 2G or 3G. If it says the 1800 MHz spectrum given to the new telcos can be used for 3G services, this will become 3G, so there?s really nothing like 2G spectrum or 3G spectrum. Indeed, spectrum in 1800 Mhz band is better than the 2100 MHz spectrum given in the 3G auction as you need to set up fewer towers to meet subscriber demand?the lower the frequency, the better the spectrum. Trai?s recommendations of May 2010 prices 2G spectrum at 1.5 times more than the auctioned price of 3G spectrum if the spectrum is in the 800 MHz band.
What is Raja?s defence?
Raja maintains he went by the Trai for allowing free entry of firms and for not auctioning 2G spectrum. As for charging the 2001 price for the spectrum, he says Trai did not ask for revising it. As for Swan and Unitech selling part of their equity to Etisalat and Telenor at prices vastly higher than what they paid the government, the minister says this was not a sale of the existing equity, it was new equity that was required to roll out network and services?and so it was incorrect to see this as the two telcos getting a windfall. Curiously, he then barred promoters of new licensee firms from doing this for three years.
Does his defence hold water?
Yes and no. It is a fact that the Trai recommendations did not ask for auctioning. But it is also true that when the media criticised Trai, its then chief Nripendra Misra clarified his position and said the 2001 price was unacceptable?at this point, no licences had been issued. Misra also said he had recommended that the existing policy be continued with, and the existing policy was that auctions were to be conducted. Misra also wrote to Raja saying his recommendations had many in-built checks to ensure firms didn?t cash out and that Raja was implementing them selectively.
Raja also tweaked the ?first come first served policy? to favour some chosen firms. The CAG has pointed out that 85 of the 122 licences were issued to firms who did not meet the required criteria on net worth and issues like that. In the case of Swan, the CAG says Reliance Telecom held a 10.71% stake in it and this disqualified it under the 10% cap rule?the company was allowed to submit a revised equity holding pattern nine months later, but the effective date of when it was in the queue for spectrum was taken as its original application date. Similarly, in the case of Loop Telecom, while it was apparent the Ruias owned more than 10% of it while holding a stake in Vodafone, the DoT did not have this investigated.
Is there any other way these companies were benefited?
A crucial recommendation of Trai with regard to the mergers and acquisitions for new licensees was tweaked by the DoT, which allowed these companies to sell stakes. Trai had said firms should not be allowed to carry out M&A till they achieved their rollout obligations. Companies have to roll out networks covering 10% of the circle by year one and 50% by year three.
However, DoT changed this and while it barred mergers for three years, it allowed them to sell stakes up to 74% before that. This helped Swan and Unitech sell stakes even before they set up a single tower.
How did Raja tweak the FCFS policy?
As per DoT?s guidelines, firms are given 15 days to complete all formalities after they get a letter of intent (LoI)?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 does not decide your position in the FCFS queue. Raja changed this and said the date of the payment would determine the position in the queue. So firms who knew when the window would open had their bank guarantees ready.
Why is January 10, 2008 a notorious date in DoT?s history?
On January 10, 2008, DoT came out with a press release stating its intent to provide LoIs to all the applicants who had applied till the cut-off date of September 25, 2007. The press release stated, ?DoT has been implementing a policy of FCFS for grant of UAS licences under which initially an application, which is received first will be processed first and thereafter if found eligible will be granted LoI.? Interestingly, a fresh clause was added to this provision: ?and then who so ever complies with the conditions of LoI first will be granted UAS licence?.
Later, on the same day, DoT issued another press release, which was quite unprecedented. It asked all applicants to authorise one representative to collect LoIs. By then it was clear by that the 15-day time given to submit the money had lost relevance. The one who paid first would be treated first. The day saw a melee in DoT, finally enabling Swan to make the payment first followed by Unitech. Thus, from number four and number eight in the list of submitting their application for licences, they became number one and two in the line for getting spectrum?and as the CAG points out, the two firms were actually ineligible on that day.
