17 November 2010

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Part One – understand the CAG Report on 2G Spectrum Scam in depth Don’t Forget its our money Scam Amount 1.76 lakh crores

Part One – understand the [ Comptroller and Auditor General of India ]
CAG Report on 2G Spectrum Scam in depth Don’t Forget its your money Scam Amount 1.76 lakh crores

1.The Report contains the results of examination by Audit of the Issue of Licenses and Allocation of 2G Spectrum of Department of Telecommunications, Ministry of Communication and Information Technology.

2.The Department of Telecommunication (DoT) under the Ministry of Communications and Information Technology (MoC&IT) was the monopoly agency providing communication facilities in India till 1994 when for the first time private players were invited to contribute to the telecom sector by way of investment for providing telecom services in the country.

3.The first National Telecom Policy was announced by the Government in 1994 (NTP-94) with the objectives of providing telephone on demand, provision of world-class services at reasonable prices and universal availability of basic telecom services to all villages.

4.Acknowledging several changes both at the national and global scenario in the telecom sector; a New Telecom Policy- NTP-99 was announced by Government w.e.f. 1st April 1999.

Licensing of all telecom services thereafter was to be under the policy framework of NTP-99, which sought to significantly redefine the competitive nature of the industry.

5.NTP 99 Policy - The new policy lifted the restrictions on the number of service providers for the Basic Service Providers (BSPs) as well as the Cellular Mobile Service Providers (CMSPs) making it open for participation by all bidders who satisfied the conditions of the DoT.

The new policy also required all operators who were under the fixed licence fee regime to migrate to a revenue sharing regime.

In the revenue sharing model, the operators were required to pay a percentage of their Adjusted Gross Revenue (AGR) as annual license fee and spectrum usage charge to the Government.

The percentage of revenue share depended on the service area* where they offered their services.

6.The Union Cabinet based on the recommendations of Group of Ministers (GoM) on Telecom matters constituted in September 2003 approved the policy for licensing of Unified Access Services.

The GoM had considered the recommendations submitted by Telecom Regulatory Authority of India (TRAI) on 27 October 2003.

The policy drew upon NTP-99. Through this approval, Cabinet besides, a number of other related decisions, charted the course to a Universal Licensing Regime. Guidelines for issue of licenses under UAS were issued on 11 November 2003 where after licences were issued only under UAS.

7.In April 2007, the DoT sought the opinion of the TRAI on some specific points including that of putting a cap on the number of access service providers in a service area, as radio frequency spectrum required for wireless services was not sufficient to meet the increasing demand from UAS Licensees.

TRAI recommended (August 2007) that no cap be placed on the number of access service providers in any service area. the DoT issued 122 new licences to 17 companies in 2008 and spectrum was allotted to all operators except for four in Delhi service area (December 2009).

8.NTP 1994 Policy - License Fee was pre-determined and bids were called on selected parameters.

9.NTP 1999 Policy - One-time entry fee before signing the license agreement. - A fixed percentage of Adjusted Gross Revenue (AGR) as annual license fee. - A fixed percentage of Adjusted Gross Revenue (AGR) of mobile services as annual spectrum charge.

10.UAS 2003 Policy - One-time entry fee before signing the licence agreement.- A fixed percentage of Adjusted Gross Revenue (AGR) as annual licence fee.- A fixed percentage of Adjusted Gross Revenue (AGR) of mobile services as annual spectrum charge.

11.Introduction of dual technology Policy - One-time entry fee equivalent to migration fee for UAS based on 2001 entry fee of CMSPs was charged for allowing DT in 2007. - Revenue sharing as for UAS 2003.

12.TRAI - The TRAI was set up in March 1997 and its mandate included making recommendations on the following matters:

TRAI also had to notify the rates at which telecommunication services within India and outside were to be provided under the TRAI Act, through Gazette notifications, from time to time.

NTP-99 stipulated that the Government will invariably seek TRAI's recommendations on the number and timing of new licences before taking decision on issue of new licenses.

The original Act of 1997 under which it was set up was amended by the TRAI (Amendment) Act 2000.

The new Act provided for the establishment of two separate bodies i.e. the Telecom Dispute Settlement and Appellate Tribunal (TDSAT) for dispute settlements between the licensor and licensees, between two or more service providers and between service providers and consumers and TRAI for regulatory functions. Thus, TRAI as a regulator has only an advisory role in the policy matters.

13.Organizational Arrangement - The work relating to formulation of policy, issue of licences for various telecom services and spectrum allocation are under the overall control of Ministry of Communications & IT. Secretary, DoT, reports to the Minister (Communications and IT) and is assisted by the Member (Finance), the Member (Technology), Member (Services), Member (Production) and Wireless Advisor .

The Secretary, DoT, is also the Chairman of the Telecom Commission which is a high powered commission, established in 1989, consisting of four full time members
(Production, Services, Technology and Finance)

and four part-time members (Secretaries of the Ministries of Finance, Industrial Policy and Promotion, Information Technology and Planning Commission).

The major functions of the Telecom Commission include policy formulation, review of performance, licensing, wireless spectrum management, administrative monitoring of PSUs, research and development, standardization/ validation of equipment and International Relations.

14.Issue of Licences -

Operators intending to provide telecommunication services have to obtain a licence from the DoT.

The guidelines for issuing new licences for various Telecom Services as approved (December 2005) by the DoT stipulated that an applicant would have to apply for a licence along with the requisite processing fees.

Applicants meeting the eligibility criteria prescribed by the DoT would be issued a Letter of Intent (LoI).

Thereafter the applicant was required to deposit the prescribed entry fees, submit the requisite Bank guarantees and other necessary documents before the grant of licence.

15.Radio frequency spectrum, i.e., the entire range of wavelengths of electromagnetic radiation, is a finite global natural resource with a high economic value, due to its heavy demand in the telecommunications sector .

The word 'Spectrum' basically refers to the collection of various types of electromagnetic radiations of different wavelengths.

Frequencies are allocated by the International Telecommunication Union (ITU) at "World Radio Communication Conferences".

Allocations are made on a regional basis and are made for different services.

Allocation of spectrum in ITU Radio Regulations exists from 9 KHz to 1000 GHz.

In India, the radio frequencies are confined between 9 KHz and 400 GHz.

16.Some of the important and typical characteristics of the radio frequency spectrum are that: radio frequency spectrum does not respect international geographical boundaries as it is spread over a large terrestrial area.

Use of radio frequency spectrum is susceptible to overlapping interference and requires the application of complex engineering tools to ensure interference free operation of various wireless networks.

Unlike other natural resources, radio frequency spectrum is not consumed upon its usage.
It is also liable to be wasted if it is not used optimally and efficiently.

17.Assignment of radio frequencies is governed by international treaties formulated under the aegis of the ITU. India falls in the ITU Region III.

18.In India, Mobile services which use GSM technology work in the frequency bands of 900 & 1800 MHz and those in CDMA technology work in the 800 MHz band.

800, 900 and 1800 MHz bands were earlier allotted to the defence services for their mobile communication usage.

Presently, 25 MHz spectrum in 900 MHz band (890 – 915 / 935 – 960 MHz) and 75 MHz in the 1800 MHz band (1710 – 1785 / 1805 – 1880 MHz) is earmarked for GSM services.

For CDMA services, 20 MHz spectrum in the 800 MHz band (824 – 844 / 869 – 889 MHz) is available. Spectrum for the roll out of 3G services (voice, data and video) were allotted through e-auction in the 2.1 GHz (1920 – 1980 / 2110 – 2170 MHz) band.

All the above bands were historically allotted to the Defence sector for their mobile and point to point communication needs in India.

Therefore, their cooperation was also required to make them available for commercial use.
To facilitate the same, Government of India (GoI) has allocated funds from time to time to provide optical fibre cables for use by the Defence Sector.

19.The audit covers the period from 2003-04 to 2009-10.

20.In January 2008, Department of Telecommunications issued 120 new licences for unified access services on the same day.

These licences were issued at price which had been discovered in 2001. Issuance of 120 licences in just one day and at a price discovered in 2001

21.It is also seen that the High Powered Telecom Commission was not even consulted at the time of grant of 122 UAS licences in 2008.

22.It has also been revealed in the course of audit that the Ministry of Finance, in November 2007, had questioned the sanctity of continuing with the price determined way back in 2001 without any indexation or current valuation.

This advice of the Ministry of Finance was overlooked by the DoT

23.Advice of Ministry of Law and Justice were ignored - important decisions seem to have been taken in DoT without the issues being deliberated and discussed at an inter ministerial forum.

24.In November 2007, the Hon’ble Prime Minister wrote to Hon'ble MoC&IT and expressed concern that in the backdrop of the inadequate spectrum and the unprecedented number of applications received for fresh licenses, spectrum pricing through a fair and transparent method of auction for revision of entry fee, which is currently benchmarked on an old figure, needs to be reconsidered.
But Ministry Ignored this.

25.Arbitrary changes by DoT in the cut-off date in 2007 – Created confusion so others can benefit or someone can benefit

26.The First Come First Served (FCFS) policy also not followed correctly.

27.The First Come First Served (FCFS) policy earlier internally adopted in DoT for allocation of spectrum,was then extended for issue of new UAS licences.

Under this policy, all applications are registered in the Central Registry Section of DoT where date of receipt and serial numbers are posted on it.

Priority of applications is determined based on this date of receipt in the Central Registry.

In a communication dated 2nd November 2007, the Hon'ble MoC&IT had even confirmed to the Hon'ble Prime Minister that the processing of applications was to be on the FCFS basis.

However, audit found that DoT deviated even from the FCFS policy in letter and spirit.

The applications submitted between March 2006 and 25th September 2007 was issued the LoIs simultaneously on a single day, viz. 10th January 2008.

28.A notice was issued through a press release giving less than an hour to collect the same.
This decision to issue LoIs simultaneously to all applicants was taken at the level of the Minister.

As per the FCFS policy being followed those who were issued LoIs were given 15 days to fulfill the conditions. This included submission of a Performance Bank Guarantee (PBG) and a Financial Bank Guarantee (FBG).

By changing the FCFS criteria, some licensees, who could proactively anticipate such procedural changes were ready with the Demand Drafts drawn on dates prior to the notification of cut off date by DoT and could avail the benefit of first right to allocation of spectrum, having jumped the queue.
The entire process followed lacked transparency and objectivity and has eroded the credibility of DoT

29.Issue of license to ineligible applicants - Process followed by the DoT for verification of applications for UAS licences for confirming their eligibility lacked due diligence, fairness and transparency leading to grant of licences to applicants who were not eligible.

Eighty five out of the 122 licenses issued in 2008 were found to be issued to Companies which did not satisfy the basic eligibility conditions set by the DoT and had suppressed facts, disclosed incomplete information and submitted fictitious documents for getting UAS licenses and thereby access to spectrum.

30.On 5th November 2007 through a letter addressed to the Hon'ble Prime Minister, S Tel limited who was a prospective licencee, having applied for UAS licences in July/ September 2007, had offered to pay a higher price in the shape of additional revenue share for next ten years.

The offer was enhanced by the firm with a stipulation to further revise it upwards, in case of any counter bid. At the prices offered by the Company, value of 122 new licenses and 35 Dual Technology licenses after discounting for the receivables in future years works out to ` 65,909 crores as against ` 12,386 crores actually received.

31.Auction of 3G spectrum was recommended by TRAI in its Report submitted to Government in September 2006.

In its Report of 2010, they have observed that it was fair to compare 2G with 3G and recommended 3G prices to be adopted as current price of 2G spectrum in 1800 MHz band.

If these recommendations, which have not so far been accepted by the Government are taken into account, then the value of 2G spectrum allotted to the 122 new licensees and 35 Dual Technology licences would be much higher at about Rs. 1,52,038 crores as against the amount actually received.

32.Many of the new UAS licensees of 2008 have been able to attract substantial amount of Foreign Direct Investment (FDI).

Value of a new company with no experience in the Telecom sector can primarily be taken as that of the license and access to spectrum.

This would have been the prime consideration for foreign companies while infusing large amount of capital in the form of equity in these companies shortly after award of license.

Based on this indicator, value of a pan India license works out between
Rs. 7,758 crores and Rs. 9,100 crores as against Rs. 1,658 crores priced by DoT.

The total value for 122 new licences and 35 Dual Technology licences would be between ` 58,000 to ` 68,000 crores as against the actual revenue of ` 12,386 crores realized.

Thus, on the values determined through various indicators, the presumptive value of 2G spectrum on account of grant of 157 licenses in different circles during 2007-08 would be in the range of approximately Rs. 58,000 crores to Rs. 1,52,038 crores.

Continued –

Reality views by sm –
Wednesday, November 17, 2010

Part Two – understand the [Comptroller and Auditor General of India]
CAG Report on 2G Spectrum Scam in depth don’t Forget it’s your money Scam Amount 1.76 lakh crores


Final Part Three – understand the [Comptroller and Auditor General of India]
CAG Report on 2G Spectrum Scam in depth don’t Forget it’s your money Scam Amount 1.76 lakh crores