2G SPECTRUM SCAM- DEPRIVED GOVT BY ALMOST $39 BILLION

The Comptroller and Auditor General (CAG) has meticulously documented how former telecom minister circumvented norms at every level and obdurately avoided scrutiny in awarding 2G licences in January 2008 at 2001 rates, which resulted in a loss of Rs 1.76 lakh crore to the exchequer. n 2008, India issued 122 new telecoms licences and the second-generation radio spectrum bundled with it to several Indian companies that had little or no experience in the telecoms sector, and at a price set in 2001. The state auditor said the allocation process did not reflect the correct value of radio spectrum as there was no auction and the entire process was flawed, benefiting selected companies. The auditor said the telecoms ministry did not do the requisite due diligence, granting 85 out of the 122 licences to ineligible applicants.

To recapitulate the spectrum swindle, the all India license and the spectrum for additional cellular operators (2G operators) was given away on a first-comefirst- served basis at 2001 prices. TRAI, experts within and outside the government, had all stated then that there was no justification for using 2001 prices when there were barely 4 million mobile subscribers as against 300 million subscribers in 2007. Soon after this sale, the parties who had secured the licenses sold it at about 6-7 times the price they had paid without doing any development at all. The difference between what the companies paid a total of Rs 9,000 crore and what the market price of these licenses were anything between Rs 60,000 to 100,000 crore is the scam, making it by far the biggest scam ever in this country. 

Who were the companies that benefited from this award of licenses? There were nine corporate entities who secured 120 licenses, which benefited from this under-valuation of the license fees Unitech Builders, Venugopal Dhoot's Videocon, Swan Telecom, Loop Telecom (reportedly owned by Ruias), S Tel, an unknown company owned by a shadowy entity Telecom Investments (Mauritius) Ltd and older players such as Shyam Telelink,, Idea Cellular, Spice and Tatas. Only a few of these were telecom companies or had any real interest in telecom. The deals struck soon after between UAE's telecom operator Etisalat and Swan Telecom, and that between Unitech and Talenor (of Norway), brought out the magnitude of the under-valuation. Swan Telecom sold 45 per cent of its stake to Etisalat for $900 million, taking its book value to $ 2 billion (Rs 10,000 crore). This is without putting up any infrastructure, let alone actually starting operations. The Unitech-Talenor (of Norway) deal was no different: it sold 60 per cent of its stake to Talenor for Rs 6,120 crores while paying only Rs 1,651 crore as license fee. Thus, the new entrants secured licenses for Rs 1,651 that were being valued in excess of Rs 10,000 crore by the market within a few months of their securing the licenses!

IMPACT ON TELECOM: India's mobile phone market is the world's fastest-growing and its nearly 700 million users trail only China, making it a must-invest market for any major global operator. But regulatory uncertainties have been a concern for some and could make foreign companies start to look more carefully where to invest. If the government imposes heavy fines on new licensees singled out in the auditor's report, it would weaken them further. The newer operators are yet to make profit as they offer heavy discounts to grab subscribers, and any financial penalty would be a blow for them, forcing some to leave the market. Some operators may also freeze network expansion until clarity emerges on the regulatory front, meaning slower growth for network equipment vendors and other service providers. In case licences are cancelled, it would lead to natural consolidation in the crowded 15-player market.