Government has been jolted by controversy over licences and radio airwaves that a state auditor
says were given out too cheaply, depriving the government of up to $39 billion in revenues. The
telecom minister, A Raja was forced to resign and the Prime Minister Dr Manmohan Singh has
been asked to
explain himself to the Supreme Court. Opposition parties want a full parliamentary probe and
have blocked proceedings until the government relents.
So, what is the controversy all about and what does it mean for the telecom sector and
companies?
WHERE WAS THE ALLEGED SCAM?
In 2008, the country issued 122 new telecom licences and the second-generation radio spectrum
bundled with it to several domestic companies that had little or no experience in the telecom
sector, and at a price set in 2001.
The state auditor said that 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 that the telecoms ministry did not do the requisite due diligence, granting 85 out
of the 122 licences to ineligible applicants.
The auditor also said the ministry did not follow its own guidelines, changed the cut-off date for
applications, which gave "unfair advantage" to some companies over others. It said that the
entire process "lacked transparency and was undertaken in an arbitrary, unfair and inequitable
manner".
The auditor said that several companies deliberately suppressed facts, disclosed incomplete
information, submitted fictitious documents and used fraudulent means to get licences and
thereby access to spectrum.
WILL COMPANIES LOSE LICENCES?
The auditor said that units of Unitech Ltd, which received licences in 2008 and now operates
services in a joint venture with Norway's Telenor, had not fulfilled eligibility conditions
including required share capital.
Other firms which were ineligible according to the auditor include Loop Telecom, Videocon
Telecommunications and S Tel Ltd. The auditor said that Swan Telecom, which has since been
partly acquired by the UAE's Etisalat , was given licences even though a unit of No. 2 telecoms
firm Reliance Communications held over 10% of equity, a violation of rules.
It is still to early to know whether any licences would be cancelled, but the pressure would be
strong not to do so because operators have invested in networks and have subscribers.
Any big crackdown could send a wrong signal to investors.
But the government could ask operators to compensate for the potential revenue loss as
highlighted by the auditor and may impose fines for not meeting separate rollout obligations.
The auditor also named nine other operators, including market leaders Bharti Airtel , Reliance
Comm and Vodafone , who were allotted spectrum beyond the contracted limit without paying
any upfront charges, costing the government a potential $8 billion.
WHAT DOES IT MEAN FOR TELECOM MARKET?
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.
WILL THIS AFFECT FDI INTO INDIA?
The country'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.
Any penalty or adverse regulatory action could also weigh on companies such as Telenor and
Etisalat, which were not part of their respective domestic ventures when the licences were
distributed. Also, the controversy would make future investors more careful before they decide
to invest in the market.
Vodafone, the single-biggest foreign investor of the nation, is fighting a $2.5 billion tax bill over
its acquisition of a mobile firm in the country and has signalled frustration with the regulations.
The Supreme Court of India has rapped the premier investigating agency, Central Bureau of
Investigation (CBI), for conducting a slipshod investigation into the 2G Spectrum Scam. The
Apex court took the CBI to task by stating that the agency was dragging its feet in the
investigation.
The SC is hearing two petitions in the matter. The first was filed by an NGO, Centre for Public
Interest Litigation (CPIL), and the second filed by Janata Party chief Subramanian Swamy.
Swamy had challenged the Delhi High Court order that rejected his plea to direct the PM to grant
sanction to prosecute Telecom Minister A Raja.
CPIL has placed before the Supreme Court two draft reports of the Comptroller and Auditor
General (CAG), which pointed out that the 2G scam has caused a loss of over 1 lakh crore to the
exchequer. Canary Trap brings you some important extracts of the CAG draft reports, which
directly points a finger of suspicion towards Raja for alleged irregularities and favoritism in the
allotment of spectrum.
Despite all agencies having full knowledge of scarcity and under pricing of spectrum, the
entry fee for issue of licenses continued to be pegged at 2001 rates even in 2007 without
delinking and independently pricing spectrum through a market mechanism, when the
entire scenario in the telecom sector had transformed in the meanwhile.
Ignoring the advice of the Prime Minister, and the Law Ministry, Raja went ahead with
arbitrarily deciding that the cut-off date for issue of LoI would be advanced to September
25, 2007 and the applications received would be decided on first-come-first-serve (FCFS)
basis.
The CAG report states that “it was amply demonstrated between September 2007 and
December 2008 that its (spectrum) demand in view of its scarcity was at its peak and thus
would have fetched the market determined price at a much higher level than that of 2001
entry fee. If price is calculated at 3G rates, which also be taken as one of the indicators
for assessing the value of 2G spectrum allocated to UAS licensees in 2008, the value
works out to Rs 111,511 crore against Rs 9,012 crore realised by DoT. Similarly, for
spectrum allocated under the dual technology as referred in earlier para the value would
have been Rs 40,526 crore, as against Rs 3,372 crore collected. The total difference in
value worked out to Rs 139,652 crore.”
It was evident that at the time of applying for UAS licence the substantial equity of M/s
Reliance Telecom Ltd in M/s Swan was 10.7%. Since M/s Reliance Telecom Ltd. were
operating in all the service area for which M/s. Swan Telecom Ltd. has applied for
USAL, their application was not in conformity with clause 8 of UASL Guidelines, and
hence was not eligible to be considered. DoT did not have any mechanism to verify the
correctness of the shareholders pattern of the applicant and hence the matter should have
been referred to the Department of Company Affairs as was advised by the Finance Wing
of the Department. No Reference, however, was made to the Department of Company
Affairs and instead M/s Swan Telecom was given an opportunity to resubmit a revised
stake holding pattern in December 2007 i.e. 9 months from their date of application
which declared that M/s Reliance Telecom had divested their entire stakes. This was
accepted by DoT and M/s Swan Telecom was given the benefit of seniority form the date
of their initial application i.e. March 2007. As M/s Swan did not meet the eligibility
criteria on the date of application, its application, its application should have been
rejected by the department and the company should have been asked to apply afresh.
Even if it is was to be considered eligible on the basis of its old application, the date of
priority based on FCFS basis should have been revised from March 2007 to December
2007 in order to ensure fairness. Had it been so, the company would have been out of the
race as the department processed only those applications which were received up to
25.09.2007.
It was noted that the priority list was adjusted in Punjab and Maharasthra service areas to
give under advantage to M/s Swan Telecom Pvt. Ltd. in allocation of spectrum. In Punjab
service area, 15 MHz GSM spectrum was available in September 2008 which was
sufficient to meet the demand of only first three applicants in the priority list i.e. M/s
HFCL, Idea Cellular Ltd. and Unitech Wireless Pvt. Ltd. The request of M/s Idea Cellular
Ltd. who was at the second place in the priority list was, however, not considered on the
grounds of its merger with M/s Spice who were offering service in Punjab service area.
By keeping out M/s Idea from the priority list, spectrum was allocated to M/s Swan
Telecom who was at the 4th position on the priority list. In identical situation in
Maharashtra service area, M/s Spice Communications was not allocated start-up
spectrum citing its merger with M/s Idea Cellular Ltd. Here too, the resulting beneficiary
was M/s Swan Telecom Pvt. Ltd.
Deviation from a Cabinet decision should normally be with the approval of Cabinet.
However, in the present case, such a crucial decision to permit service providers to offer
access services using combination of technologies (CDMA, GSM and/or any other) under
the same license with the dual spectrum allocation was taken without the matter being
referred to Cabinet.
DoT has given a list of operators who could attract foreign investments, consequent to the
grant of UAS licenses in January 2008 as in the Table below (Table not included in the
post). Out of the above six, three companies viz M/s Swan Telecom, M/s S Tel and M/s
Unitech were new entrants in the telecom sector. The fact that these operators could draw
huge foreign investment, even before establishing a foothold in the Indian Telecom
market would suggest that acquiring UASL and with it, allotment of 4.4 of GSM
spectrum for rollout, was the main factor which attracted the foreign investment.
The Unitech Wireless Services, claimed in their letter to DoT on November 4, 2008 that
M/s Telenor was partnering with them at a stage when about 6 months of effort and Rs
2,100 crore expenses had already been put in and the entity’s value was not only that of
spectrum. However, considering that Telenor is an established international provider of a
high quality telecommunications, data and media communication services and one of the
Norway’s largest companies owned 54% by the Norway Government what they would
have required to run their business in this country was, primarily access to the spectrum.
Considering its trained manpower strength in 12 countries, its long standing technical
expertise and international experience of dealing in telecom business, it can be
convincingly concluded that, the high value paid by them was primarily for the spectrum
and not for other inputs claimed to have been infused by Unitech. Such huge equity
infusion by the investor company was a price that they paid for 2G spectrum which was
allocated to Unitech, a company with no experience in telecommunication sector, at a
throw away price DoT. The value which should have accrued to the new licensees in the
form of huge capital infusion for enriching their business.
The entire process of spectrum allocation was undertaken in an arbitrary manner. The
Hon’ble prime Minister had stressed on the need for a fair and transparent allocation of
spectrum, and the Ministry of Finance, and the Ministry of Law and Justice had sought
for the decision regarding spectrum pricing to be considered by an EGoM. Brushing aside
these concerns and advices, the Development of Telecommunications, in 2008,
proceeded to issue 122 new licenses for 2G spectrum at 2001 prices, thus flouting all
rules and procedures to be followed for spectrum allocation was also unfair, considering
the fact that DoT introduced in artificial cap, arbitrarily changed the cut-off-date for
receipt of applications post facto and altered the conditions of the FCFS procedure it had
been following, thus creating an environment which cannot be perceived as transparent
and fair.
Dual Technology was introduced by DoT in a manner, which was in contravention of the
Cabinet decision of 2003, resulting in additional spectrum being allotted to certain
operators at 2001 price. Also by introducing unfair adjustments in the priority list, DoT
favoured certain operators. Given its scarcity value and increasing demand, a
comprehensive evaluation of available spectrum was required which was not done. With
the UAS policy and its subsequent amendments being implemented in a weak and
indeterminate manner and with the reluctance on the part of DoT to address the issue of
pricing of 2G spectrum, it was only natural that 2G spectrum was allocated at much
below its value.
The Hon’ble MoC&IT for no apparent logical or valid reasons ignored the advise of
Ministry of Law, and Ministry of Finance, avoided the deliberations of the telecom
Commission to allocate 2G spectrum, a scarce finite national asset at less than its true
values on flexible criteria and procedures adopted to benefit a new operators. TRAI, the
regulator also stood by as a helpless spectator when its recommendations were being
either ignored or misused.
The CAG draft report also mentions a note (Dated: January 15, 2008) sent to the PM by the
Finance Ministry, which says that the “previous issues of licences be treated as a closed chapter
and henceforth price of spectrum be discovered through an auction process.” This reveals the
casual approach within the UPA Government towards this mega-scam, which resulted in a loss
of Rs 139,652 crore to the exchequer.
Despite mounting evidence (from CVC, CAG, CBI) of blatant corruption A Raja still presides
over the Telecom Ministry. While Prime Minister Manmohan Singh — heading one of the most
corrupt governments in our country post-Independence — seem helpless in taking action against
Raja because of the electoral considerations for the assembly polls in Tamil Nadu due to take
place in 2011.
Cafe Coffee Day , the pioneer ofthe cafe concept in India, unveiledits firstspecialty format
cafe‚ `Coffee Day Square` in Bangalore. It is incidentally Cafe Coffee Day’s700th outlet and
will be aimed at cities like Bangalore, Mumbai and Delhi in the primary phase . The initial batch
of new Coffee Day Square cafes can be expected to crop up in New Delhi and Mumbai in 2009.
The latest addition to the Cafe Coffee Daychain claims to serve an assortment of `single origin
coffee` brews from different parts of the world like Ethiopia, Colombia, Peru, Costa Rica and the
mountain ranges of Himalayas, Kathlekhan, Rajgiri and Araku Valley. "The launch of Coffee
Day Square is a natural evolution for the brand, having pioneered the coffee cafe concept in the
country. It is only apt that we should have an exclusive cafe in India serving single origin
coffees," said Alok Gupta, Director, Cafe Coffee Day. Cafe Coffee Day is a division of India`s
chief coffee conglomerate, Amalgamated Bean Coffee Trading Company Ltd. (ABCTCL),
known as Coffee Day.It presently operates through 700 cafes in 110 citiesin India, three outlets
in Vienna, Austria and two in Karachi, Pakistan. It plans to set up cafes in the Middle East,
Eastern Europe, Eurasia, Egypt and South East Asia in the coming months.The company’s
immediate goal however, is todeeper penetrate the Indian market and journey past the 1000
outlets mark by 2010. According to Bidisha Nagaraj, President,Marketing, Cafe Coffee Day,
“the future lies in being present at every place a consumer is looking out for that special
experience ;be it on a high street, in a neighbourhood, at a mall, office/educational institute
premise, highway, airport, etc..” Nagaraj declined however, to divulge the investments involved
in or the returns anticipated fromthis business reinforcement plan. In conformance with the
precept of evolution, Cafe Coffee Day has been employing variations in format ,contingent upon
preferences of consumers . It has consolidated itself through various cafe formats, namely Music
Cafes, Book Cafes, Highway Cafes, Lounge Cafes, Garden Cafes and Cyber Cafes.It plans to
launch Sports Cafes, Singles’ Cafes andFashion Cafes too,in the future. Cafe Coffee Day’s core
target patrons are between 15-29 years of age, and aremostly students and young working
professionals
