2G scam: How the NDA made spectrum stealing easy

By Aditi Roy Ghatak and Paranjoy Guha Thakurta

It would be simplistic to assume that that the 2G spectrum scam happened only with Andimuthu Raja. Spectrum has been gifted away or stolen ever since the policy of allowing private players was unfolded in 1994. In this fifth and final part of our series on The Fine Art of Stealing Spectrum (read the earlier parts here , here , here , and here ) we document what happened during the NDA regime - and how norms were thrown to the winds under ministers Ram Vilas Paswan, Pramod Mahajan and Arun Shourie.

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The report of the Comptroller & Auditor General (CAG) of India on the telecom sector for the year 2000 had confirmed a loss to the exchequer on account of the migration policy from licence fees to revenue-sharing but did not quantify the amount. The Department of Telecommunications (DoT), however, told the Joint Parliamentary Committee (JPC) headed by Congress MP PC Chacko that the exchequer lost in excess of Rs 43,523.92 crore on account of the NDA government’s 1999 migration policy from a licensing system to a revenue-sharing one.

Still, in the proceedings of the JPC, there has not been much talk of how spectrum has been ‘stolen’ for the better part of the last 18 years, even as the doubling of allocated spectrum had to be legitimized.

The amendment to the licensing agreement of 2001 quietly slipped in the following sentence: “…charges covering royalty payment for the use of cellular spectrum up to 4.4 Mhz + 4.4 Mhz…” would be payable as per the WPC’s (or the Wireless Planning & Coordination wing of the DoT’s) prescriptions. Nowhere had it been admitted that the licensees had already received double the amount they should have; the amendment was sinister in that it seemed to pass off an act of illegality as an accepted position. Ram Vilas Paswan was Telecom Minister till 1 September 2001, handing over charge to Pramod Mahajan the next day.

The amendment in the licensing agreement took place in September 2001. The constant factor was Shyamal Ghosh, who served as Telecom Secretary from 7 February 2000 to 3 May 2002. Responding to a question asked during a meeting of the JPC, Ghosh reportedly said that it was a practice to allocate additional spectrum since 1996 and that the DoT had decided that additional spectrum up to 6.2 Mhz (Mhz) could be given “based on justification”. What exactly did Ghosh mean?

It was during Paswan’s tenure as Telecom Minister (13 October 1999 to 1 September 2001) with Ghosh serving as Secretary that the now-infamous First-Come-First-Served (FCFS) principle of allotting spectrum was initiated for the first time. Truth be told, the then minister and secretary went by the book in terms of unrolling the policy: the policy had been approved by DoT’s then legal adviser, its member, finance, the Telecom Commission (supposedly the highest policy-making body in the DoT), not to mention the Group of Ministers and the Union Cabinet.?

Even if there was no loss to the exchequer reported at that time on account of the FCFS policy, the spectrum giveaways continued. More importantly, one of India’s most influential corporate groups had entered the telecom sector in a big way. Reliance Infocomm was allowed to offer ‘full’ nationwide mobility instead of ’limited’ mobility, causing many eyebrows to go up.

A lot had happened till August 2011, when Paswan was Telecom Minister. Fresh guidelines for basic service licences (BSL) were issued, as recommended by the Telecom Regulatory Authority of India (TRAI) on 25 January 2001, with licensing of basic telephone service opened on a continuous basis, on receipt of application and subject to fulfilment of eligibility conditions. The licensees were to be allocated spectrum for wireless access system in local area on a FCFS basis and 25 new licences were issued till 2003. No upfront fee was charged for the spectrum and the annual licence fee and spectrum charges were to be payable separately at a prescribed percentage of adjusted revenue (AGR), though those using CDMA (c_ode division multiple access) technology were given_ spectrum up to a maximum of 5 Mhz with their licences.

The Justice Shivraj V. Patil committee report, covering irregularities in procedures followed by DoT between 2001 and 2009, talks at length about how the principle of FCFS was vitiated. In any event, there was little rationale for the FCFS principle when the licence itself would be accompanied or bundled with spectrum. There may have been a case for FCFS for basic fixed services that needed connectivity in the local loop, but certainly none for full mobility.

There was a veritable serpentine queue for licences: the policy was announced on 25 January 2001, and applicants were seen waiting with bank drafts in hand at 4 am in the morning of 29 January 2001, a Monday, the day the applications would be accepted for fixed wireless services - almost reminiscent of what was to come seven years later in 10 January 2008, when A. Raja was Telecom Minister. The era of FCFS had arrived, subject, of course, to other conditions being fulfilled.

More than a decade after the event, PC Chacko, heading the current JPC on the 2G telecom scam, talking to journalists after MPs had grilled former Telecom Secretary Anil Kumar (1998-2000), said that Cabinet approval for the move came despite dissenting notes on the policy from the outgoing Communications Minister Jagmohan and the then Finance Minister Yashwant Sinha.

For the first time, in 2001, DoT offered an initial start-up spectrum of 6.2 Mhz through a process of auction, which was issued to the fourth cellular operator without additional upfront charges though the auction was held for 4.4 Mhz of start-up spectrum. The beneficiaries were Bharti, Vodafone, Idea and Reliance Internet (see box). The minister was Paswan.

The Justice Shivraj Committee report says: “On 12.11.2001, DoT, VAS (value added services) Cell, with the approval of the minister, issued an order that 72 new cellular licensees may be assigned 4.4 + 4.4 Mhz in 1,800 Mhz band straightaway for the complete service area under the licence. It further provided that while allotting the spectrum of 4.4Mhz + 4.4 Mhz, the operators may be given an option to seek allotment of additional 1.8+1.8 Mhz in the beginning itself, subject to payment of additional one percent of revenue as licence fee. This was done without there being consideration by Telecom Commission or input from (the) WPC (Wireless Planning & Coordination) wing (of the DoT). Even there was no recommendation from Trai in this regard.”

There was a lot of other activity as well. Based on Trai’s recommendations and with the approval of the government, the DoT issued 17 new licences to private companies as fourth cellular operators in September and October 2001, one in each of the four metros and in 13 telecom circles. These licences were awarded on the basis of bidding for upfront entry fee.

In 2001, the government also wanted to bring in a fourth operator in each circle. An upfront fee would be charged based on a three-stage financial bidding process from technically qualified bidders in the four metros and the 13 telecom circles (with no bids invited for Assam, the North East or Jammu & Kashmir). Besides, there would be a revenue-sharing component in the annual licence fee and a spectrum usage charge for the entire 20-year licence period. The licence would be technology neutral. The fourth operators were allotted spectrum in the 1,800 Mhz band. But there were several significant changes made in the rules of allotment.

As one has noted earlier, the ‘cumulative maximum’ criterion for holding spectrum had been breached. The government said in the amendment to the licence agreement in September 2001 that 4.4 Mhz + 4.4 Mhz would be permitted and that, based on usage, justification and availability, additional spectrum of up to 1.8 Mhz + 1.8 Mhz would be considered, making a total of 6.2 Mhz + 6.2 Mhz, on case by case basis, on payment of additional licence fee. The bandwidth up to a maximum (4.4 Mhz and 6.2 Mhz) as the case may be, would be allocated based on the technology requirements.

Besides, spectrum charges would be levied at the rate of two percent of the adjusted gross revenue (AGR) for cellular spectrum up to 4.4 Mhz (paired). For the first time the government used the term ‘paired’, neatly covering up what it had done earlier. The government also talked of additional bandwidth attracting additional fees as revenue share. Typically, it would be a one percent additional revenue share if bandwidth up to 6.2 Mhz was allotted in place of 4.4 Mhz.

Then came the regime of Pramod Mahajan with Ghosh continuing as Secretary, DoT, taking certain decisions seemingly in haste though Ghosh himself claimed before the JPC that these decisions were taken after many rounds of discussions. On the basis of the available documents, it would appear that on 10 January 2002, the Telecom Secretary put up a note to Mahajan. It said that the “MoC & IT had desired that we should examine the question of giving additional frequency to the cellular operators, particularly those facing problems in Delhi and Mumbai”.

The note went on to say that the question of optimal utilisation of frequency had been under the ministry’s consideration for a while and that the Telecom Engineering Centre (TEC) had been asked to review the position. The report indicated that there was no immediate need for additional spectrum if the allocated spectrum was optimally utilised with better network configuration by decreasing the cell size and decreasing the distance between these cell sites to about half a kilometre.

In fact, data available with respect to cellular services being provided in Beijing and Shanghai indicated that, with proper planning, it was possible to sustain even a larger subscriber base with the existing allocation of spectrum. Ghosh’s note to Mahajan, however, said that if the growth rate of subscribers was to be sustained, there would be need for allocations of additional spectrum frequencies.

It was also suggested that for frequency allotment beyond 6.2 Mhz, it might be better to impose an additional allocation fee rather than increasing the revenue share. The benchmark for the additional fee could be the entry fee in respect of the fourth cellular operator for Delhi and Mumbai, pro-rated for the spectrum allotted. It said that the details were being finalised. Essentially, the report indicated that there was no need to rush through the spectrum allocation process and recommended an allocation fee for additional frequency spectrum.

How did Mahajan and Ghosh respond ( See document 5 )? Keep in mind that there was no provision in the initial contracts even to consider giving spectrum beyond the contracted 4.4 Mhz. On 31 January 2002, Mahajan convened a meeting to discuss a revised proposal for allocation of additional spectrum beyond 6.2 Mhz in the 900 Mhz band to existing cellular operators. It said that there was need to allocate additional spectrum in Mumbai and Delhi metro service areas where there was congestion and a drop in the quality of service reported by the cellular operators.

The meeting considered allocation of additional spectrum beyond 6.2 Mhz and up to 8.0 Mhz to cellular operators without any upfront charge and with an increased AGR, by one percent (from three per cent for 6.2 Mhz to four percent for up to 8 Mhz).

Ghosh then further revised the note in his own hand saying that additional spectrum up to 10 Mhz may be given without any upfront charge. It was also decided that spectrum from 8.0 Mhz to 10.00 Mhz would be allotted without any further increase in revenue share. The absentee signatories to the note/proposal are of interest: the Wireless Advisor to the DoT was retiring that day, the Member (Production) and the Member (Finance) was out and the only ones present were Minister Mahajan and Secretary Ghosh. The more important question that needs to be examined was since there was so much talk of opening up the telecom sector to more people, why was there this unseemly hurry to allocate more spectrum to the same set of players.

What was the tearing rush to give away spectrum on the basis of a decision taken on a day when certain key officers were unavailable, violating the government’s own recommendations and against the Telecom Secretary’s own understanding of the issue that he had placed in writing on 10 January 2002, on both issues of allocation of additional spectrum and quantum of the allocation fee? What was the urgency that made the two throw caution to the winds and not even take a signed approval of all absentees but be satisfied with a verbal agreement? What was the resultant loss and who were the beneficiaries of the liberal terms? These questions are being examined by the JPC and it is almost certain that the role played by Mahajan and Ghosh will be commented on, as and when the committee’s report is finalised.

The urgency was probably occasioned by the knowledge that the report of the Telecommunication Engineering Centre (TEC) on the topic would become available on 2 February that year and that the report could thwart the intent of the minister. The report, signed by the senior Deputy Director General, TEC, said: “While some congestion was noted due to radio resource, the other main reasons of congestion and quality of service are insufficient cell sites, large intersite distances even in congested areas, lack of optimal RF (radio frequency) planning, insufficient interconnection links, etc”.

Yet another note on “Cellular radio frequency spectrum for cellular Service Providers”, drafted on 7 February 2002 makes a similar reference to “some congestion”, while talking of the WPC’s decision to release spectrum on the basis of the Minister’s approval. This additional spectrum was made available with no auction, no additional fee and this time with the stamp of official authority.

What is the bottomline? The initial operators (the first to the fourth) have been allotted additional spectrum of about 150 Mhz beyond 4.4 Mhz and up to 6.2 Mhz without any upfront charge. What the value of 150 Mhz would be today is a question that is waiting for an answer. Essentially what happened in 2002 was that Pramod Mahajan gave away spectrum beyond 6.2 Mhz to operators without any upfront charge, based on subscriber base, against the recommendation of the TEC and the then secretary, only on the request of the operators, which resulted in about 90 Mhz of spectrum being allotted to these operators beyond 6.2 Mhz, without any upfront charges.

There were more changes in the offing. In September 2003, the NDA government set up a Group of Ministers (GoM) for telecom under the chairmanship of the then Finance Minister Jaswant Singh to chart out a course towards a universal licensing regime based on the regulator’s recommendations. The proposals were cleared by October 2003, approving yet another migration of basic and cellular licenses to a unified licensing regime and fresh guidelines were issued by DoT in November 2003 because all future licences would be issued as unified access service (UAS) licences and that the entry fee for new UAS licenses would be equal to the entry fee for fourth cellular operators. By November 2003, Arun Shourie had become Telecom Minister.

In a manner of speaking, Shourie freed the operators from the oppression of the bureaucracy - no one had to run to Sanchar Bhavan for licences. Earlier, there was need for a clearance for every kind of licence and there were so many of them. Unifying the licensing regime was a good idea but one question remained: what was the need to do so with a bureaucracy already so pliable and the players so large? The biggest beneficiary of Shourie’s tenure as Telecom Minister and the change in policy allowing operators providing ’limited’ mobility to ‘full’ mobility was, of course, the then undivided Reliance group.

The UAS licence too would be issued on a FCFS basis and spectrum would be allotted, subject to availability. Reliance, which had entered the fray in 2001 under Paswan’s FCFS scheme, now got permission to provide mobile phone services with full mobility, thanks to DoT under Shourie’s stewardship.

The policy provided for an initial allocation of a cumulative maximum up to 4.4 Mhz (paired) for TDMA (t_ime division multiple access)-_based systems, or 2.5 Mhz (paired) for CDMA (code division multiple access)- based systems, subject to availability and specified that spectrum not more than 5+5 Mhz in respect of CDMA systems or 6.2+6.2Mhz in respect of TDMA systems would be allocated to any new UAS licensee. Besides, the spectrum would be allocated in the 824-844 Mhz paired spectrum band with 869-889 Mhz, 890-915 Mhz paired with 935-960 Mhz and 1,710-1785 Mhz paired with 1,805-1,880 Mhz.

These technical clarifications were crucial to ensure that no one secured spectrum in any band other than what had been specified. Spectrum charges on a revenue-sharing basis were to be notified separately by the WPC (Wireless Planning & Coordination) wing of the DoT from time to time. The licensor retained the right to modify or amend the procedure of allocation of spectrum, including the quantum of spectrum.

The government then came up with the subscriber base criteria stating that it would allot an extra 1.8 Mhz spectrum up to 6.2 Mhz if the licensee reached a subscriber base of 500,000. Also, subject to availability, allocation of spectrum up to 10 Mhz would be considered. The subscriber-linked criteria was revised in March 2006 and the biggest beneficiaries were the big three of Indian telecom: Bharti, Vodafone and Idea. The Shivraj Patil Committee report points out endless instances of aberration from the prescribed policies of the time. Under the segment, Terms of Reference 4, it says in paragraph 20 (4.1 XX):

“In case of Bharti Airtel Ltd, an allotment of 2 + 2 Mhz beyond 8 + 8 Mhz of spectrum has been made for Delhi service area on 17.7.2003 though no criteria for allotment beyond 8 + 8 Mhz existed. The allotment seems to have been made in anticipation of report of the Lalwani Committee, which was approved by MoC&IT on 18.08.2003. In the absence of laid down procedure much less published/announced one, allotment of spectrum (additional) beyond 8 + 8 Mhz was improper”.

The stealth of spectrum having been papered over, things seemed to be hunky dory till the relatively recent brouhaha over spectrum allocation and valuation erupted, which prompted the DoT to seek legal opinion on a hitherto unadmitted crime as recently as January 2012. The DoT now wants to know whether a one-time spectrum charge can be levied for spectrum already allotted beyond 6.2 Mhz with retrospective effect. Even the legal opinion sought is based on a less than honest rendering of the facts of the case.

The DoT does not admit that it had already allotted 8.8 Mhz way back in 1996. It does not even say that it had sanction only to offer a cumulative maximum of 4.4 Mhz and 4.5 Mhz in 1994-95. The law ministry is yet to respond. There is no gainsaying though that any opinion that it gives could well be on the basis of incorrect facts. Even so, one hopes that this time the DoT will not get away with obfuscation.

The point is that much more spectrum will be on demand and much more will be given away. The question is: will it be given for free? Spectrum, one is often told, is ‘priceless". In a world where technical phrases are invested with different meanings, will ‘priceless’ be deemed to be free of price? Will the past giveaways be condoned or will the guilty be brought to book or at least made to pay? The moral and legal issue is meting out justice to those who colluded in giving away spectrum, a finite and scarce resource that belongs to the people of India, beyond the contracted amount for they clearly violated the law of the land.

Given the ongoing trend of discourse and discussion, one can take a pessimistic view and contend that not only will those responsible for squandering away a natural resource not be punished but that they may not even be asked to pay for what they have consumed! This is unfortunately what the current debate between telecom operators and the government seems to be heading towards, despite the Telecom Commission holding that operators using 2G spectrum will have to pay up for excess spectrum held beyond 6.2 Mhz. The Mad Hatter’s Telecom Party continues.

(End of Part V and series. Read Part I , Part II , Part III and Part IV here)