2G scam: The story so far

The telecom scandal was in the news all of last week after the SC ordered the cancellation of 122 licences.

Published: 07th February 2012 11:54 PM  |   Last Updated: 16th May 2012 05:51 PM   |  A+A-

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Over the last week or so, the judgments in the Supreme Court and CBI trial court hearing the 2G spectrum allocation scam case have rarely left the headlines.

The Prime Minister’s Office has been ticked off, the report of the Comptroller and Auditor General (CAG) has been vindicated, then Finance Minister P Chidambaram has been let off the hook, then Telecom Minister A Raja has been taken to task and — most importantly — 122 telecom licences granted when he was in charge of the ministry have been revoked. Auctions will be held to sell the spectrum now available.

The background

In January 2008, the Telecom Ministry began licensing 2G spectrum to mobile telephony companies. Instead of auctioning the spectrum or increasing prices, the government sold it at prices fixed in 2001, and on a first-come, first-served basis. This is believed to have caused a loss of `1.76 lakh crore to the treasury, as estimated by the CAG.

Later, it was found that two of the companies that bought licences — Unitech Group and Swan Telecom — sold stakes in their companies at huge profits to other corporate firms. This means the licences, which were supposed to be sold at market value, had actually been sold for much less.

The CAG report also found that up to 85 of the 122 new licences had been sold to firms with no prior telecom experience, that had suppressed relevant facts or were otherwise ineligible. Among other charges, Raja has been accused of accepting bribes to grant spectrum.

The scam broke in 2010, when the Income Tax Department was investigating corporate lobbyist Niira Radia, and media houses got hold of taped conversations between her and MPs including A Raja and Kanimozhi, as well as between her and industry captains including Ratan Tata and representatives of Mukesh Ambani. Radia’s conversations with senior journalists Barkha Dutt and Vir Sanghvi set off a furore about the media’s role in the scam. The government has since claimed in court that these tapes were doctored.

While the UPA government went on the defensive, with current Telecom Minister Kapil Sibal saying there was ‘zero loss’ to the exchequer because of the manner in which spectrum was distributed, there was speculation for some time that the government may collapse under the weight of the scams its ministers were involved in — the 2G and the Commonwealth Games scams among these.

What happened in the courts?

On February 2, the Supreme Court gave its verdict — all 122 licences were to be cancelled. The decision took everyone by shock, and could have far-reaching consequences for several telecom companies. The involvement of foreign investors could likely mean there will be a series of frantic meetings between the powers-that-be in the near future.

A few days earlier, the Supreme Court had ticked off the Prime Minister’s Office for sitting on an appeal from Janata Party President and lawyer Subramanian Swamy, to prosecute then Minister Raja. The apex court stipulated a three-month time frame for sanction to be given to prosecute a minister, after which permission will have been deemed granted. The court noted that Swamy had been pursuing the case for three years.

The SC also said the government only made a sixth of the amount it could have if spectrum had been auctioned. Swamy, who filed the case on behalf of his NGO Centre for Public Interest Litigation also alleged then Finance Minister P Chidambaram was complicit, with Raja, in allowing Swan and Unitech to offload their shares at a profit of seven to eight times to UAE-based Etisalat and Norwegian firm Telenor respectively. However, the SC, which hadn’t indicted either Manmohan Singh or Chidambaram, left it to the trial court to decide on Chidambaram’s involvement. On Thursday, the CBI trial court dismissed the petition against Chidambaram.

The SC, however, came down heavily on Raja, saying he had not informed the Finance Secretary about meetings with the Telecom Regulatory Authority of India (TRAI), or got in touch with the Finance Ministry to finalise the pricing for spectrum, despite knowing the Finance Secretary was not in favour of selling spectrum at 2001 prices.

It also vindicated the report of the CAG, upholding that there were irregularities in spectrum allocation, and that it had been given out in an “arbitrary and unconstitutional manner”. The 122 licences were for about `9,000 crore, while a smaller number had fetched the government `69,000 crore.

The court also imposed a fine of `5 crore on three companies that offloaded their shares for profit. Seeking fresh recommendations from TRAI regarding auction, the apex court directed the government to take steps within a month to conduct auctions in a transparent manner within four months.

In response to Swamy’s demand that a Special Investigation Team (SIT) be constituted to look into the case, as the government agencies were not conducting a satisfactory probe, the SC appointed the Central Vigilance Commission (CVC) as watchdog for the case. Acknowledging that the CBI had not been up to speed in the beginning, the Bench held that since December 16, 2010, the agency had been thorough in its investigations. But taking into account “the large number of influential persons” involved, it asked the Enforcement Directorate and CBI to give all their status reports in sealed covers to the CVC.

The Impact

With several operators who have acquired licences already in business, there could be largescale use of the number portability provision. It isn’t clear yet what recourse existing customers of companies like Uninor, Docomo and Idea have. The shares of several of the nine  companies whose licences have been cancelled have fallen sharply in the stock market.

In terms of economy, there are consequences for the banking sector and for Foreign Direct Investment (FDI).

Banks, including the government-owned State Bank of India and Punjab National Bank, as well as several private banks, had given loans to the tune of `28,000 crore to operators against the spectrum that comes bundled with licences. As the licences have been revoked, these loans cannot be repaid, and will become ‘non-performing assets’ or ‘bad loans’.

The sudden revocation of licences could also make foreign investors wary of investing in telecom in India. From April 2000 to March 2011, FDI has amounted to about `48,000 crore.

Politically, a blame game is being played out. Sibal has reversed his ‘zero loss’ stance, and has blamed the previous NDA regime for fixing the prices in 2001 and formulating a first-come-first-served policy. The opposition BJP, which was a key constituent of the NDA, has been making noises against the UPA’s corrupt policies, while Team Anna and Baba Ramdev have taken to addressing rallies about the corrupt government with renewed zeal.

What will happen now?

Swamy has said he will file an appeal in the Supreme Court against the verdict in favour of Chidambaram in the trial court. Several high-profile lawyers have been hired by the firms whose licences have been cancelled. Tata has hired Harish Salve as consultant, while Idea has brought in C S Vaidyanathan, and Loop Telecom is using the services of Aryama Sundaram.

Diplomatic talks are likely to begin soon, as Norwegian firm Telenor and Russian firm Sistema are involved. Telenor has a 67.25 per cent stake in Uninor, the rest with real estate major Unitech. The Norwegian government, in turn, has a 55 per cent stake in Telenor, and its IT and Government Administration minister Rigmor Aasrud, who is scheduled to visit India anyway, has sought a meeting with Kapil Sibal. Russian embassy officials have said their politicians will speak to India shortly, as Sistema has invested $600 million in the project.

It is estimated that up to 300 megahertz of spectrum is likely to be auctioned by the middle of the year. Of this, 98 megahertz is from the operators whose spectrum was cancelled. The remaining could come from the spectrum available with the Defence and other departments.

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