CAG Report On 2G

Preface
This Report for the year ended March 2010 has

been prepared for submission to the President
under Article 151 of the Constitution.
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. The audit covers the period from
2003-04 to 2009-10.
Performance Audit Report on the

Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications i
Executive Summary
I. Changes in the Telecommunications sector in India
In the last two decades the telecom sector witnessed rapid transformation with the National
Telecom Policy-94 setting the stage for opening up of the sector. With changes in the sector,
cellular mobile services outgrew the fixed line services. The most important change was the
shift to a revenue sharing regime in National Telecom Policy (NTP) 1999 where the operators
shared their revenue with the Government in the form of annual licence fee and spectrum
charges. The Unified Access Services Licence (UASL) 2003 sought to frame the road map for a
uniform licencing regime.
II. Why did we decide to do an audit on the Issue of Licence and

allocation of Spectrum now?
This sector has witnessed dynamic and rapid transition. It had been subject to audit and a
report titled “Package of Concessions Given to Cellular Mobile Operators” was presented to
Parliament in May 2000. A further review of the “Revenue Management in the Department of
Telecommunications” was also undertaken by this office in 2004-05. This review mainly focused
on the system of collection and accounting of licence fee and spectrum charges from the
licensees. The Report based on this review was presented to Parliament in May 2006.
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 has drawn the
attention of Media, Parliament and informed members of the civil society. Questions have been
raised regarding the transparency in the allocation process and the failure in maximization of
revenue generation from the allocation of spectrum, which is a national asset. This department
had been receiving innumerable references from Members of Parliament and other sources
repeatedly, questioning the allocation process and the price fixed for such allocation. The claim
in each such reference is that ineligible applicants seem to have been granted licences and at a
price which appeared far below what has been perceived to be the appropriate market price in
2008. It was in this context that this department felt that there was a sufficient justification to
review the entire process of issuance of licences, award of spectrum and the implementation of
the UAS regime. The need for doing so was further justified as six years have passed since the
introduction of the UAS regime in 2003. While accepting the Government's prerogative to
formulate the policy of UASL, it was felt that an in-depth examination of implementation of such
policy needed to be done.

Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications iii
III. How this Report is Organised?
Chapter 1 and 2 of this Report give the Policy Overview, System of issue of licences & allotment
of spectrum and the Audit Approach. In Chapter 3, we have narrated the Audit findings relating
to the implementation of UAS policy and Chapter 4 details the findings on the procedural
lapses. Chapter 5 attempts to highlight the various indicators available to assess the
presumptive value of spectrum. To attempt at deriving a maximum realizable economic value
for allocation of 2G spectrum licences in 2008, recourse would have to be taken to a menu of
different economic models. Each such model would be based on certain assumptions which
may not necessarily be obtained when Government decides on a price for a scarce national
asset as there would be no foolproof market discovery mechanism at any point of time. Each set
of assumptions underlying the economic models could be open to questions and be disputed.
For this reason we have only attempted to arrive at a presumptive value in this Report.
IV. Major Findings

(i) Gaps in policy implementation
In August 2003 TRAI had submitted a Report recommending a road map for allocation of
licences. This Report formed the basis for the UAS policy approved by the Council of
Ministers in October 2003. The implementation of UASL regime was to be carried out in
two phases with first phase of six months assigned for migration of already existing Basic
Service Operators (BSOs) and Cellular Mobile Service Operators (CMSOs) to the new
regime. The entry fee for migration of BSOs was determined as the fee equal to what was
paid by the fourth cellular operator introduced through multi-stage bidding process in
2001. CMSOs were not required to pay any entry fee for migrating as they had already
entered the market through a bidding process and thus paid a market determined price.
The second phase was to start after the first phase in which a Unified Licencing regime,
with a nominal entry fee for the licence with the spectrum being charged separately, was
envisaged.
However, Audit examination reveals that the Department of Telecom did not implement
the licensing regime as approved by the Cabinet and implemented only the first phase of
the policy, overlooking the second phase. In the actual implementation, the interim stage
of implementation seems to have become the final destination. This appears to have
become the underlying factor, quite erroneously, to value the spectrum in 2008 at 2001
prices. An important objective of this policy decision to delink the prices of spectrum from
the issue of licence and devise an efficient allocation formula for spectrum along with an
appropriate price, remained unachieved. Ministry of Finance was authorized by the
Cabinet decision of 2003 to participate in the discussion for efficient allocation of
spectrum and price fixation but DOT decided not to associate the Ministry of Finance.

iv Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications
As a consequence of such lacunae in the implementation of the policy laid down by the
Council of Ministers in 2003 the issuance of licences in 2008 along with allocation of
spectrum has been done by DoT at prices determined in 2001 which were based on a
totally nascent market despite the sector witnessing substantial transformation and
manifold growth. The issue was never placed before Cabinet for a review.
(Paras 3.1, 3.2, 3.3)
(ii) Telecom Commission was not consulted

From a scrutiny of the records and information made available it appears that the High
Powered Telecom Commission which also includes part time members from the Ministry
of Finance, Industry, IT and Planning Commission was not apprised of the TRAI
recommendations of August 2007 and hence, was not afforded an opportunity to
deliberate on the merits of the TRAI recommendations. 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.
(Paras 4.2, 4.5)
(iii) Views and concerns of Ministry of Finance overruled

It was noted in Audit that DoT managed to keep the issue of spectrum pricing outside the
purview of the GoM. The GoM's role in December 2006 was confined to issues concerning
spectrum vacation. The ToRs left out the other two issues of efficient allocation and
pricing, while all three were pronounced in the policy decision of 2003. Thus by getting the
spectrum pricing issue deleted from the ToR, the DoT completely side-tracked the pricing
issues.
(Para 3.2)
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. The Ministry had sought a review of the
matter. This advice of the Ministry of Finance was overlooked by the DoT ostensibly on the
basis of a four-year old Cabinet decision (October 2003) on the premise that it was
authorized to calculate the entry fee for licences as per the recommendations of TRAI in
2003 . DoT maintained that 'spectrum pricing was within the normal work carried out by
them.'
(Para 4.5)

Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications v
(iv) Advice of Ministry of Law and Justice were ignored
In October 2007 at its own initiative, the DoT requested the Ministry of Law and Justice to
obtain and communicate the opinion of the Attorney General/Solicitor General of India to
enable the DoT to handle an unprecedented rush of applications in a fair and equitable
manner which would be legally tenable. The Ministry of Law, at the level of the Hon'ble
Minister, opined that in view of the importance of the case and the various options which
seem to have emerged, it was necessary that the whole issue be first considered by an
Empowered Group of Ministers (EGoM) and in that process legal opinion of the Attorney
General can be obtained. Surprisingly, this opinion, which the DoT had sought on its own
volition, was felt to be 'out of context' at the level of the Hon'ble MoC&IT and hence the
benefit of a discussion in the EGoM was also forgone. Thus, such important decisions
seem to have been taken in DoT without the issues being deliberated and discussed at an
inter ministerial forum.
(Para 4.3)
(v) Hon'ble Prime Minister's suggestions were not followed

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. This advice of the Hon’ble Prime Minister evoked an
immediate response from the Hon'ble MoC&IT who on the same day replied that the
issue of auction of spectrum was considered by the TRAI and the Telecom Commission
and it was not recommended by them as the existing licence holders had already got
spectrum upto 10 mega hertz per circle without any spectrum charge. Hon'ble MoC&IT
further informed that his Ministry has come to the conclusion that it will be unfair,
discriminatory, arbitrary and capricious to auction spectrum to new applicants as it will
not give them a level playing field. He had thus, justified the allotment of spectrum to a
few new operators in 2008 without reconsidering the old entry fee discovered in 2001
ignoring the advice of the Hon'ble Prime Minister.
(Para 4.4)
(vi) Arbitrary changes by DoT in the cut-off date.

The TRAI report of August 2007 had recommended 'no cap' on the number of licences in
any service area. Despite this recommendation of TRAI, the DoT issued a Press Release on
24th September 2007 stating that applications for issue of licences would be accepted
only upto 1.10.2007. This action, in effect, conveyed fixation of an artificial cap in the
number of licenses to be awarded. However, in its response (July 2010) to the report
issued to the Ministry (July 2010), the Ministry has stated that it accepted the
recommendation of 'no cap' by the TRAI in October 2007. It seems that the Ministry, by

vi Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications
issuing the press release in advance in September 2007 had, in effect, circumvented the
recommendation of TRAI by taking an action counter to the recommendation and its
acceptance by DoT in October 2007. To further compound the earlier decision, of
restricting consideration of applications received up to 1.10.2007, the DoT further
advanced this date to restrict issuance of Letters of Intent (LoIs) only to applications
received up to 25.09.2007. This was ostensibly to avoid legal implications in view of the
shortage of spectrum for GSM services.
(Paras 4.1.2, 4.6)
(vii) FCFS Policy was not followed

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 were issued the LoIs simultaneously on a single day, viz. 10th
January 2008. 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.
(Para 4.6)
(viii) 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.
(Para 4.7.1)

Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications vii
(ix) Presumptive value of spectrum allocated to 122 new UAS licencees
and 35 Dual Technology licencees in 2007-08
Any loss ascertained while attempting to value the 2G spectrum allocated to 122 licencees
in 2008 can only be 'presumptive', given the fact that there are varied determinants like its
scarcity value, the nature of competition, business plans envisaged, number of operators,
growth of sector etc. which, depending upon the market situation, would throw up the
price that it commands at a given point of time. Instead of attempting to come to a specific
value of 2G spectrum which could have been possible only through an efficient market
discovery process, we have looked at the various indicators to assess a possible
(presumptive) value, from the records made available to Audit rather than going for any
mathematical/econometric models.
(Para 5.1)
1. 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.
(Para 5.2)
2. 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 ` 1,52,038 crores as against the amount actually received.
(Para 5.3)
3. 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
` 7,758 crores and ` 9,100 crores as against ` 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.
(Para 5.4)
viii Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications
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 ` 58,000 crores to ` 1,52,038 crores.
(Para 5.5)
(x) Value of additional spectrum allotted to 13 existing operators beyond

contracted quantities
Spectrum was allotted by DoT to the existing operators beyond the contracted limits
without imposing any upfront charge for such allotment. The value of spectrum held by 13
operators for 51 circles based on the 2001 rates worked out to ` 2561 crores. Based on the
above indicators, value would be in the range of ` 12,000 crores and ` 37,000 crores.
TRAI's recommendation (2010) for charging this additional quantity of spectrum has not
been accepted by the Government so far.
(Para 4.10, 5.5)
(xi) Presumptive loss of spectrum allocated to 122 new UAS licensees and
35 Dual Technology licenses in 2007-08
The presumptive loss as per the methods adopted would be as given in the table below:
Category Criteria for working out potential loss to exchequer (value ` in crores)
S Tel rate Rates on the basis Sale of equity by the new licensees
of 3G auction
Unitech Swan
New Licences 38950 102498 40442 33230

Dual Technology 14573 37154 15132 12433
Beyond contracted quantity 13841 36993 14052 12003
of 6.2 MHz
Total 67364 176645 69626 57666

Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications ix
Chapter 1
Introduction 1
1.1 Growth in Telecom Sector
I n the recent times, India has emerged as one of the fastest growing telecom markets in
the world. 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. Since then it has been one of the few sectors in India, which has
witnessed widespread structural and institutional reforms. With 62.13 crore telephone
connections (Fixed lines- 3.70 crore and wireless 58.43 crore) as on March 31, 2010, it is the
second largest network in the world after China. The eleventh plan target of 50 crore
connections by 2010 stood achieved in September 2009 shown in the chart 1.1 below.
Chart - 1.1 Growth of Telecom Network (Wireline and Wireless)
6212.80
Total
Number of Phones (in lakhs)
Wireless phones
4297.20
Wireline phones 5843.20
3004.90
3917.60
2058.60
2610.80
1420.90
983.70 1650.90
647.60 765.30 1018.60
356.10 359.50
228.30
410.30 400.20 414.20 402.30 407.70 394.10 379.60 369.60
2003 2004 2005 2006 2007 2008 2009 2010
Y E A R

Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications 1
1.2 Overview of Policies
1.2.1 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. NTP-1994 recognized that the required resources for
achieving these targets could not be made available only out of Government sources
and private investment and involvement of the private sector was required to bridge
the large resource gap.
1.2.2 While there were several achievements under the NTP 1994, some of the objectives
could not be met. 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. 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.
Chart - 1.2 Revenue on account of Spectrum charges and Licence Fee
Total
13214.39
13588.05
Licence Fee
11910.36
14000 Spectrum Charges

9778.52
9759.81
12000
9128.31
8855.24
9098
8421
(Rs. in Crore)
10000
7856
8020
7037.92
6624
6816
8000
5467
4827
3809.53
6000
3454.55
3055.72
2090.39
4000
1996
1040
640
2000
677
0
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Y E A R
*
The country is divided into 22 Service Areas. Earlier it consisted of 19 Telecom Circles and 4 Metros for providing
Unified Access Services (UAS). Subsequently Chennai was merged with Tamil Nadu service area.

2 Issue of Licences and Allocation of 2G Spectrum by the Department of Telecommunications
1.2.3 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.
1.2.4 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 1221 new licences to 17 companies in 2008 and spectrum was
allotted to all operators except for four in Delhi service area (December 2009).
There were 241 Unified Access Service (UAS), 2 Basic Service (BS) and 38 Cellular
Mobile Telephone Service (CMTS) Licences as on 31 March 2010.
1.2.5 TRAI in August 2007 also recommended that “a licensee using one technology may
be permitted on request, usage of alternative technology and thus allocation of dual
spectrum. However, such a licensee must pay the same amount of fee which has
been paid by the existing licences using the alternative technology or which would
be paid by the new licensee going to use that technology”. 35 licencees were
permitted to use dual spectrum and allocated spectrum in 2007-08.
1
In January 2008 DoT issued 121 Letters of Intent (LOIs) against which only 120 licenses were issued. Two more
licenses were issued in July 2008.

1.3 Methodology for Entry and Fee Structure in Various Policy Regimes
BOX-1
Policy Stage Methodology for Entry of Operators Fixed Fee Regime
NTP 1994 n In first phase (Nov-94), two CMTS licences License Fee was pre-determined
were awarded in four Metro cities on beauty and bids were called on selected
parade* basis. parameters.
n In second phase (Dec-95), two CMTS
licences were awarded in 18 telecom circles
through a process of competitive bidding.
n Six companies were awarded Basic service
licences through bidding process.
NTP 1999 n All existing BSOs and CMSPs were required - One-time entry fee before
to migrate to the new regime. signing the license agreement.
n Number and timing of new licenses was to - A fixed percentage of Adjusted
be based on TRAI's recommendations. Gross Revenue (AGR) as
n BSNL and MTNL became the third CMTS annual license fee.
operator in 2000. - A fixed percentage of
n Seventeen new CMTS licences as fourth Adjusted Gross Revenue (AGR)
cellular mobile operators in 2001 through a of mobile services as annual
multi-stage bidding process. spectrum charge.
n Twenty Five new Basic service licences in
2001 based on eligibility as per the
guidelines issued on January 2001.
UAS 2003 n All the existing BSOs and CMPSs were given - One-time entry fee before
option to migrate to UASL regime; by BSOs signing the licence agreement.
paying the difference of entry fee paid by - A fixed percentage of Adjusted
them that as paid by the fourth CMTS Gross Revenue (AGR) as
operator in 2001and CMTS operator at nil annual licence fee.
entry fee. - A fixed percentage of
n 51 new UAS licences were awarded Adjusted Gross Revenue (AGR)
between 2004 to March 2006 at the entry of mobile services as annual
fee determined in 2001. spectrum charge.
n 122 new UAS licences awarded in 2008, also
at the same entry fee of 2001.
Introduction of n Approvals were issued in 2007-08 for dual - One-time entry fee equivalent
dual technology technology (for using both CDMA and GSM) to migration fee for UAS
in 35 service areas at the entry fee based on 2001 entry fee of
equivalent to the migration fee fixed in CMSPs was charged for
2001. allowing DT in 2007.
- Revenue sharing as for UAS
2003.
*
Beauty parade fixes the price of spectrum to ensure optimum utilization by awarding it to the user(s) who score the highest
against a group of pre set criteria (such as rural coverage or the fulfillment of roll out obligations).

1.4 Role of Telecom Regulatory Authority of India (TRAI)
The TRAI was set up in March 1997 and its mandate included making recommendations on
the following matters:
n need and timing for introduction of new service providers.
n terms and conditions of the licences to be given to service providers and
n efficient management of the available spectrum.
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.
1.5 Organisational 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.

Minister of Communications & IT
Minister of State for Communications & IT
Secretary, DoT & Chairman, Telecom Commission
Full time Members Part Time Members
Member Member Member Member Secretary Secretary Secretary Secretary

(Finance) (Services) (Technology) (Production) (Information Technology) (Finance) (Planning Commission) (Industrial Policy &
Promotion)
Advisor Advisor DDG (AS)
Advisor Wireless
Advisor
1.6 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.
1.7 Spectrum Allocation
Radio Frequency Spectrum is the entire range of wavelengths of electromagnetic

radiation which is used as carrier of wireless transmission and thus a basic requirement for
providing wireless services. It is a finite but non-consumable global natural resource and
commands high economic value in the telecommunication sector.
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.
Some of the important and typical characteristics of the radio frequency spectrum are that:
n radio frequency spectrum does not respect international geographical

boundaries as it is spread over a large terrestrial area.

n 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.
n 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.
Assignment of radio frequencies is governed by international treaties formulated under the

aegis of the ITU. India falls in the ITU Region III.
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.
Spectrum for mobile services as per NFAP 2002

800 MHz Band - only for CDMA
824 844 869 889

900 MHz Band - only for GSM
890 915 935 960

1800 MHz Band - GSM and CDMA
1710 1785 1805 1880

2 GHz Band - 3G Services
1920 1980 2110 2170
1.7.1 The Wireless Planning & Coordination (WPC) Wing in the Department of
Telecommunications deals with the policy of spectrum management, wireless
licensing and frequency assignments. The spectrum allocation policy is contained in
the National frequency allocation plan (NFAP) which is based on the International
Radio Regulations. The NFAP (1981) and its subsequent revisions in consultation
with the national users through the forum of Standing Advisory Committee on Radio
Frequency Allocation (SACFA) provides the basis for assignment of frequency.

Wireless licence is an independent licence and therefore any UAS licence holder
intending to offer mobile services has to obtain a separate wireless licence from
WPC wing.
BOX-2
Allocation of contractual and additional spectrum
Detail of licences Allocation of contractual spectrum Allocation of additional spectrum
CMTS licences for first A cumulative maximum of up to 4.4 MHz +4.4 As per DoT's order dated 22nd
and second Operators MHz in the 900 MHz band based on appropriate September 2001 bandwidth up
(1994-1995) justification. to 6.2 MHz+6.2 MHz instead of
CMTS licences for A cumulative maximum of up to 4.4 MHz +4.4 4.4 MHz+4.4 MHz subject to
third Operators MHz in the 900 MHz band based on appropriate availability and justification
(1997-98) justification. effective from 1.8.99.
CMTS licences for A cumulative maximum of up to 4.4 MHz +4.4 As per DoT's order dated
fourth operators MHz in the 1800 MHz band. Based usage, 1.2.2002, 1.8 MHz+1.8 MHz
(2001) justification and availability, additional spectrum spectrum beyond 6.2 MHz (total
up to 1.8 MHz+1.8 MHz making a total of 6.2 8 MHz+8 MHz) would be
MHz+6.2 MHz. assigned to an operator on
reaching a subscriber base of 5
lakh or more in a service area.
Further, allocation of spectrum
up to 10 MHz+10 MHz on
reaching prescribed subscriber
base could also be considered
subject to availability.
CMTS licences for Initially a cumulative maximum of up to 4.4 MHz In 2006, criteria for allotment of
fourth operators + 4.4 MHz in TDMA/GSM based systems or a additional spectrum in GSM
(2001) maximum of 2.5 MHz + 2.5 MHz in CDMA based beyond initial spectrum (4.4
systems, on case by case basis subject to MHz) was revised which was
availability. based on the minimum
The Licensee operating wireless services will subscriber base ranging from 2
continue to provide such services in already lakh subscribers for 6.2 MHz to
allocated/contracted spectrum. 26 lakh subscribers for
maximum of 15 MHz 2G
New UAS Licences Initially a cumulative maximum of up to 4.4 MHz spectrum depending upon the
granted during + 4.4 MHz in TDMA/GSM based systems or a category (A/B/C) of the circle or
November 2003 to maximum of 2.5 MHz + 2.5 MHz in CDMA based service area.
March 2007 systems, on case by case basis subject to
availability.
In January 2008, criteria for
Additional spectrum allowed based on optimal
allotment of additional
utilisation but not more than 5+5 MHz in
spectrum in GSM band beyond
respect of CDMA or 6.2+6.2 MHz in respect of
initial spectrum (4.4 MHz) was
TDMA/GSM.
again revised needing a
UAS licences using Initially a cumulative maximum of up to 4.4 MHz minimum subscriber base
dual technology + 4.4 MHz in TDMA/GSM based systems and a ranging from 15 lakh subscribers
(2008) maximum of 2.5 MHz + 2.5 MHz in CDMA based for 6.2 MHz to 116 lakh
systems, on case by case basis subject to subscribers for maximum of 14.2
availability. Additional spectrum allowed based MHz 2G spectrum depending
on optimal utilisation but not more than 5+5 upon the category (A/B/C) of
MHz in respect of CDMA or 6.2+6.2 MHz in the circle or service area.
respect of TDMA/GSM.

Chapter 2
Audit Approach 2
2.1 Audit Scope and Methodology
T he audit was conducted during January 2010 to September 2010 covering the period
from 2003-04 to 2009-10. The audit covered the implementation of policy for Unified
Access Licensing Regime and allocation procedure for 2G spectrum to new as well as existing
operators under the UAS. The audit was conducted on the basis of records/information to
the extent made available by the DoT, and the related files of the DoT seized by the CBI in
October 2009 made available to Audit. The relevant files produced by the Ministry of
Finance (MoF) were also examined before finalising the audit comments. Audit also
accessed public documents available on the website of the Ministry of Corporate Affairs to
confirm the compliance of licensee companies to the conditions of UASL Guidelines and the
provisions of the Companies Act. The Report takes into account, the replies by the DoT and
the MoF in response to the audit observations communicated to them in July 2010 and
September 2010. As per the Performance Audit guidelines, Entry and Exit Conferences
were held on 23 December 2009 and 20 May 2010 respectively. The DoT sought a further
meeting with Audit to discuss the draft audit Report. The meeting was held on 4 October
2010. This Report takes into account the discussions between audit team led by the Deputy
Comptroller and Auditor General and the DoT team led by Advisor (Finance).
2.2 Audit Objectives
Audit was taken up with the objectives of ascertaining as to;

n Whether the policy for issue of licence under the Unified Access Services (UAS) was
implemented efficiently;
n Whether the UAS licenses were issued and radio frequency spectrum was allocated
in a fair, transparent and efficient manner and
n Whether the potential for revenue generation to Government was optimally
managed.

2.3 Organisation of Audit findings
The audit findings have been organised in three chapters for convenience of understanding
n Chapter 3 includes the issues related to the implementation of UAS policy;
n Chapter 4 deals with procedures adopted by the DoT for issue of licences and
allocation of spectrum;
n Chapter 5 aims at assessing the financial impact of various deficiencies brought out
in Chapter 3 and 4.
2.4 Acknowledgement
We place on record our sincere appreciation for the cooperation of the Department of
Telecommunications, Ministry of Finance and the Central Bureau of Investigation in
facilitating our audit.

Chapter 3
Implementation of 3
Unified Licencing Regime
3.1 Gaps in implementation of UAS regime
I n October 2003 TRAI submitted its recommendations on Unified Licensing regime which
envisaged total elimination of service based licensing. Unified Licence was an approach
towards convergence of access media. Full implementation of the new regime was to be
completed in two phases. The Union Cabinet approved the TRAI report in October 2003.
Phase I was the first step of migration of existing licensees to the Unified Access Licensing
Regime. This was to be followed by a second phase of a fully Unified Licensing /Authorisation
Regime having all telecom services under one licence. This was for grant of licences to new
operators. However, the benefits of Phase I were extended to new operators. Ministry
replied that TRAI had submitted two more recommendations one on Unified Licensing
(January 2005) and another on Spectrum Related issues (May 2005). Though Unified
licensing was the first step towards convergence, it was not implemented since the
Convergence Bill lapsed in Parliament. Thus the ultimate objective of Unified Licensing did
not materialise. DoT however, as explained earlier did not revisit the Unified licensing
regime but implemented it for new licensees also.
3.1.1 TRAI, in its report on Unified Licensing accepted by Government in October 2003,
had recommended that Unified Licence Regime should aim at automatic
licensing/authorisation for telecom services subject to notification to Regulatory
Authority and compliance with published guidelines by operator thereby removing
all barriers for growth in the sector. The underlying principle was to allow licence at
nominal entry fee and price the spectrum separately, it being a scarce public
resource. TRAI had further observed that “spectrum was to be distributed by a
mechanism that it is allocated optimally to the most efficient user”.
3.1.2 Unified Licensing/Authorisation being the main objective, TRAI had recommended
a two-phase implementation. Recognizing that primary objective of growth in tele-
density depended on securing access network at low cost, in the first phase,
unification of access services at the Circle level was recommended whereby the
service providers of new Unified Access Licensing Regime would be able to offer
basic and/or cellular services using any technology (GSM or CDMA). The second
phase was to be soon followed by defining the guidelines and rules for fully Unified
Licence/Authorisation Regime.

3.1.3 Based on the recommendations of Group of Ministers which agreed with the
principles laid down by TRAI in its Report, Cabinet (31 October 2003) approved the
proposal for charting the course for Universal Licensing Regime in the following
manner:-
n A two-stage process; the Unified Access Regime for basic and cellular operators
allowing a migration path to existing BSPs and CMSPs in the first phase to be
implemented immediately followed by a second phase of a fully Unified
Licensing/Authorisation Regime within six months, bringing all telecom services
under one licence, after a process of detailed consultation by TRAI;
n Fee paid by the fourth cellular operator to be used as benchmark for migration
of BSOs to the new access regime and no fee to be paid by the existing CMSPs for
migrating to new regime;
n The DoT to be authorised to finalise details of implementation of UAS and the

fully Unified Licence Regime with the approval of the Hon'ble Minister of
Communication & Information Technology (MoC&IT) based on the
recommendations of TRAI.
In pursuance to the Cabinet's approval, the DoT issued the guidelines on UAS
Licencing (11 November 2003), for moving towards UASL regime by giving the
option to all existing BSOs and CMSPs to migrate to UASL regime. The guidelines
also included a condition that “All applications for new Access Services Licence shall
be in the category of Unified Access Services Licence.” There was ambiguity
regarding entry fee to be charged from the new licensees as TRAI had not given any
recommendation regarding introduction of new operators in the first phase of UASL
regime. Secretary, DoT, spoke to the Chairman, TRAI who clarified
(14 November 2003) that entry fee of the new unified licensee would be the entry
fee of 4th Cellular Operator and in service areas where there is no fourth operator,
the entry fee of existing BSO fixed by the Government (based on TRAI
recommendations). DoT decided to receive all applications under UAS without
revision of the spectrum allocation procedures/revision of entry fee, which
automatically lifted the restriction on the number of operators in the UAS regime.
3.1.4 TRAI's Recommendations of 2003 not followed in spirit
In its recommendation, TRAI had considered three alternatives for migration of

existing operators in para 7.16 to 7.18 of their Report submitted to Government on
27 October 2003, including that of bidding by the existing and new prospective
operators, but did not favour it on the grounds of likely delay in implementation of
UAS regime. TRAI recommended a third option in para 7.18 of its Report which
suggested migration of existing BSPs by charging entry fee determined through a
bidding process in 2001 for the fourth cellular operator and no entry fee from the
existing CMSPs. There was no mention regarding entry fee to be charged from the

new licensees under UAS, as entry of new operators had not been recommended by
TRAI in the first phase of UAS which was intended only for migration of existing BSOs
and CMSPs. Thus, the first phase of six months was meant for migration of existing
operators. TRAI had recommended new operators only in the fully Unified Licensing
Regime. TRAI had also suggested that “taking cognizance of spectrum availability,
TRAI is in favour of introducing more competition. However, we feel that in lieu of
more cellular operators it would be more appropriate to have competition in the
Unified Licensing framework which will be initiated after 6 months” (Para 7.37).
TRAI in their same Report submitted to Government had recorded in para 7.39 that
“the induction of additional mobile service providers in various service areas can
be considered if there is adequate availability of spectrum. As the existing players
have to improve the efficiency of utilisation of spectrum and if Government
ensures availability of additional spectrum then in the existing licensing regime,
they may introduce additional players through a multi-stage bidding process as
was followed for fourth cellular operator”. TRAI also recommended that the
guidelines for Unified licensing should include nominal entry fee, USO etc.
Thus, the stipulation of the DoT to benchmark entry fee in respect of new licenses
also at the same level which was allowed for migration of existing BSOs was not
consistent with the recommendations of TRAI (2003). This issue was neither
deliberated by the TRAI in its recommendations (2003) nor at the Telecom
Commission level nor by the GoM on Telecom matters constituted in September
2003. The Cabinet also did not give any directions on the issue.
3.1.5 One of the major objectives of movement towards Unified licensing regime, of
which first step was migration of existing licensees, was to ultimately de-link
spectrum from licence and encourage its efficient use by rational allocation
procedure and pricing. Under the fully unified licensing regime it was envisaged that
the licence fee would be nominal allowing the operator to provide different telecom
services with a separate procedure /regulation for allotting spectrum for which TRAI
had yet to give its recommendations. TRAI's recommendations in this regard have
not yet been implemented by the DoT, which also meant that an important and
crucial objective of 2003 policy remained unachieved.
3.1.6 The Ministry justified the non revision of entry fee on the ground that the entry fee
recommended by TRAI in August 2003 was not only for migration of existing
operators but also for new prospective UASL operators as well and the
recommendations were approved by the Cabinet on 31.10.2003. Further, the Union
Cabinet had authorised DoT to finalise the details of implementation with the
approval of Hon'ble MoC&IT and hence the guidelines were issued in November
2003. The Ministry also stated that their action was also consistent with the
clarification given by the then Chairman TRAI (November 2003). It was also stated
that TRAI submitted two recommendations on fully Unified Licencing regime in
2005 but could not be implemented since the Convergence Bill lapsed in Parliament.

The contention is not correct as the issue of the non revision of entry fee for new
prospective UASL operators had not even been raised in the note put up to the
Cabinet. Even TRAI in their report (October 2003) had recommended for a two stage
implementation of the UAS licensing regime in which the first phase was regarding
migration of existing BSOs and CMSPs to the UAS and the second phase for the new
UAS licences. The first phase was to be implemented immediately while the second
phase was to commence only after the receipt of fresh recommendations of TRAI
within six months (Para 7.1 of TRAI recommendations of October 2003). Therefore
the issue of non revision of entry fee for new licensees/operators was not discussed
in any forum- Telecom Commission, TRAI, GOM or Cabinet. If the DoT needed more
clarity in implementing recommendations of the TRAI, it should have written for
clarifications from the TRAI on the specific issues. Raising/discussing the issues on
telephone and getting clarification even in a letter from the Chairman TRAI on the
same day in his individual capacity on such a critical issue shows undue haste and an
avoidance for following the normal official procedures by the DoT. Further, the
Chairman, TRAI did not have the authority to issue a clarification on an issue which
had not been discussed and deliberated upon in the Authority. The clarification was
not in line with the recommendations of TRAI as para 7.39 of the Report read that “if
Government ensures availability of additional spectrum then in the existing
licensing regime, they may introduce additional players through a multi-stage
bidding process as was followed for fourth cellular operator”. Any such clarification,
which altered the TRAI's recommendations substantively, should have been taken to
the GoM and Cabinet as their decision was based on the original TRAI's
recommendations.
3.1.7 The DoT's action of applying the rates approved for the existing operators for
migrating to UAS regime, to new applicants also by relying on the clarification of the
Chairman TRAI in his individual capacity was inconsistent with the
recommendations of the TRAI (2003) and went beyond the authority given by the
Cabinet. It also violated all canons of financial propriety. The DoT had to resort to
informal clarifications from TRAI before concluding that new applications would also
be at the entry fee of price determined for 4th CMSP in 2001 as against TRAIs
recommendation of introducing new operators in the existing regime through a
multi-stage bidding process. Elimination of bidding process without delinking
licensing from spectrum was not intended by TRAI.
The decision to continue to charge entry fee at 2001 level even from the new licensees
under UAS regime in 2003, was thus not deliberated either in the TRAI or Telecom
Commission or GoM or Cabinet.

3.2 Issue of Price discovery of spectrum was over looked
The MoF, right from the year 2003, quoting international practises and scarcity factor had
maintained that auction of spectrum and its trading under a regulatory frame-work could
induce competition and transparency in the system and would result in most efficient
utilisation of spectrum. TRAI in October 2003, while recommending Unified Services
Licensing, had also proposed to submit a separate report regarding spectrum allocation and
pricing. Based on these inputs, Cabinet, in its decision of 31 October 2003 while charting the
course to the UAS and US licencing regime had also approved the following:
n adequate spectrum would be made available for unimpeded growth of Telecom

services for which WPC wing of the DoT and Ministry of Defence(MoD) should
coordinate;
n MoF will provide MoD adequate budget and;
n The DoT and the MoF would discuss and finalise pricing formula for spectrum
including incentive for efficient use and disincentive for sub-optimal usages.
3.2.1 Thus, spectrum pricing issue was to be decided in consultation with the MoF.
However, when a GoM was constituted in February 2006, its Terms of Reference
(ToR) were modified at the instance of the DoT to keep the issue of spectrum pricing
outside its purview. Though MoF insisted for its inclusion in the ToR for the GoM,
DoT maintained that 'spectrum pricing was within the normal work carried out by
them'. The MoF opined that spectrum pricing was an issue which has far reaching
consequences for the economy and needed to be debated, but this was not
considered at the highest level and the views of the DoT prevailed in finalisation of
ToR. The GoM's role, in December 2006, at the instance of the DoT, was confined to
issues concerning 'spectrum vacation'. Thus, without MoF getting a chance to
contribute to the issue of pricing of spectrum, new licences continued to be issued
along with the spectrum.
It was also noted that the DoT kept the applications for UAS licence pending since
March 2006 on the grounds of non-availability of spectrum, though a decision to get
the spectrum vacated from MoD was taken way back in 2003. DoT admitted that
prior to April 2007, availability of spectrum was not quantified and GSM spectrum
allotments to service providers/operators were made after due co-ordination with
MoD on a case to case basis. Since the availability of spectrum had not been
quantified till April 2007, the basis for keeping the applications pending and seeking
TRAI recommendation (April 2007) on limiting the number of Access Service
Providers on the grounds of non-availability of spectrum is inexplicable.

3.2.2 Again in August 2007, TRAI in its report observed that the entry fee as it existed in
2001 was not a realistic price for obtaining a licence in the changed situation
considering the dynamism and growth of telecom sector and it needs to be
reassessed through a market mechanism. It also observed that value of spectrum
was not correctly reflected in the extant pricing model and recommended again for
de-linking of spectrum from licence. Yet, TRAI did not favour any change in 2G
spectrum pricing even for new entrants on the grounds that it would affect the
principles for level playing field for the new operators. It is to be noted that the role
of TRAI, as per the TRAI Act is primarily to foster competition and to ensure a level
playing field in the sector. Generation of revenue for the Government is not within
the scope of its mandate and hence not perhaps a basis for framing its
recommendations. Thus, while accepting the recommendations of TRAI, protecting
the financial interests of the Government should have been an important
consideration for the DoT, more so, when it had left out MoF from the decision
making process with regard to the pricing formula of spectrum.
3.2.3 The DoT in response to the audit observation, stated (July 2010) that in February
2006 the then Hon'ble MoC& IT had apprised the Hon'ble Prime Minister that one
major bottleneck in the sustained growth of telecom sector was the availability of
spectrum and not its allocation and thus ToR was revised with the approval of the
Hon'ble Prime Minister.
3.2.4 While ensuring availability of spectrum which is also at a price, the DoT should not
have lost sight of the need for a realistic price for 2G spectrum, especially in the light
of the fact that the price being charged was discovered from a nascent telecom
market in the year 2001 and was approved by the Government as benchmark only
for the purpose of allowing migration of Basic Operators to UAS regime in 2003 for
operating mobile services.
3.2.5 MoF while agreeing with the Audit view stated that the Ministry has at various
points of time been advocating for a more rational mechanism for allocation and
pricing of 2G spectrum. Right from August 2003 they have been recommending
greater orientation in spectrum allocation, keeping efficiency and optimal utilisation
considerations in mind, through auction to users, who are willing to pay the
maximum fee. MoF concurred with Audit that the assumption of the DoT to the
effect that spectrum pricing was within its normal work allocation was not tenable.
The MoF observed that “in view the directions of the Union Cabinet (October 2003)
and particularly in the absence of requisite clarity in the recommendations of TRAI
and decision of the Union Cabinet, in regard to the fixation of entry fees for new
licensees, prudent principles of governance would have required DoT to engage in
further inter-ministerial discussions particularly with the MoF. The fact that this
was not done despite repeated advices from MoF does give scope for creation of
doubt, on the validity of the decision taken to fix the entry fee for new licenses at
2001 levels”.

3.3 Move from Unified Access Service to Unified Licencing -
Not Reviewed For 6 Years
It is important for a growing economy that a policy decision is subject to review /is revisited
constantly with adequate feed-back for application of collective wisdom of Government,
particularly if it relates to a sector witnessing transition and operating within a dynamic
environment, as was the case with the Telecom sector during 2003-2009. In this case, despite
gaps in policy implementation as detailed above, there was no attempt on the part of the DoT
to review the implementation processes holistically, which is one reason for the pricing issue
remaining unaddressed.
When two-stage Unified Access Licensing policy could not be implemented fully as cleared by
the Cabinet in October 2003, it was never again placed before the Cabinet for
charting/approving the next /alternative course of action. The Cabinet did not get the chance
to consider the changed scenario whereby Unified Services Licensing Regime introduced with
the intention of de-linking spectrum allocation from licensing could not be fully achieved. An
approved interim stage was thus treated as a final destination by the DoT.
3.3.1 DoT justified continuance of 2001 rates for issue of licenses to Audit stating that the
Government treats telecom sector as an infrastructure sector and accordingly the
Government's broad policy of taxes and regulation of the sector are promotional
where revenue considerations play a secondary role. Also, the policy of grant of UAS
licences was not changed since introduction because this has resulted in an
unprecedented growth of telecom services. Change in policy is considered when the
existing policies are not delivering desired results which were not the case in the
telecom sector.
3.3.2 Policies are evolved through the initiatives of the concerned Ministries. The response
of DoT suggested that it had not taken into account the unprecedented growth in the
telecom sector, the scarcity of the resources and the increasing economic value of 2G
spectrum, when it decided not to review the pricing of spectrum. This was despite
TRAI's observation that value of spectrum needed to be reassessed through a market
mechanism and MoF also was advising for rational pricing.
Thus, despite all agencies having full knowledge of scarcity and under pricing of spectrum, the
entry fee for issue of licences continued to be pegged at 2001 rates even in 2007 without
delinking and independently discovering the price of spectrum through a market mechanism.
Meanwhile, the entire scenario in the telecom sector had transformed amidst unprecedented
growth in the sector.

Chapter 4
Procedures Adopted in
Issue of UAS Licences and 4
Allotment of Spectrum
B efore detailing the audit findings relating to procedural aspects of issue of licences and
allocation of spectrum various steps involved have been listed out in the following chart.
Procedures for Issue of Licence
l Applications received in central registry and date recorded for making priority
Receipt of list based on date of receipt of application
Application
l Enclosures includes requisite processing fee
Processing of l Scrutiny of application based on the criteria contained in the guidelines

applications l Final Priority list of eligible applicants drawn up
Issue of LoI l LoI to be issued in 30 days by post to the eligible applicants
l Compliance to LoI conditions within 15 days from the date of issue of LoI
Compliance of l Payment of one-time entry fee
LoI conditions l Submission of Performance Bank Gurantee (PBG) and Financial Bank Gurantee
(FBG) by the applicant
Issue of l Signing of UAS license

License l Licensee becomes eligible to apply for wireless license
Application for l Application for wireless license

spectrum l Allocation of spectrum on first-come-first serve (FCFS) basis
4.1 Issue of UAS Licences and Allocation of 2G Spectrum
Gaps in implementation of policy led to a situation, when on the one hand allocation of
spectrum was not delinked from licences and on the other hand applications for new
licences continued to be received by the DoT without framing guidelines for UASL. The
guidelines were finally issued in December 2005 and at that time also spectrum was not
delinked from licence as intended through the 2003 policy. Even the provisions of these
guidelines were not meticulously followed.
As per guidelines issued for UASL (2005), licences were to be issued on continuous basis
without any restriction on the number of entrants in a service area and applications were to
be processed within 30 days of submission. Allocation of radio-spectrum and grant of
wireless licence was subject to availability and in case UAS licensee was not allocated

spectrum due to non-availability, the Licensee was required to endeavour to roll out services
using wire-line technology. However, applications for issue of UAS licence were not
processed within stipulated period and delayed inordinately by the DoT. In 2004-05, 14 out
of 15 applications for grant of UAS Licences were delayed by 608 to 969 days. In 2005-06, all
9 applications were delayed by 232 to 421 days. All 29 applications for issue of new UAS
Licence received in 2006-07 were not processed till October 2007 without assigning any
reason/justification on records and without sending any communications to the applicants.
This largely opaque and uncertain delivery system coupled with fast paced growth in the
telecom sector during the decade led to heavy rush of companies to the sector.
After issuing 51 new licences under UAS regime since 2004, and keeping 53 applications
pending from January 2006, DoT sought recommendation from TRAI in April 2007 on the
issue of limiting the number of access providers in each service area. TRAI, in its report of 28
August 2007 recommended 'no cap' on the number of licences.
4.1.1 Undue Haste in Receiving and Processing Applications
Despite the TRAI's recommendation of 'no cap' which was accepted by the DoT in
October 2007, on 24 September 2007 DoT issued a Press Release stating that
applications for issue of licences would be accepted only up to 01.10.2007. This
press notification signaled the possibility of an impending cap in the number of
licences to be awarded, which led to a sudden spurt in applications. Till issue of this
press release, 167 applications had been received including those remaining
unprocessed since March 2006. After introduction of this artificial cap by the DoT,
there was a sudden spurt in applications and 408 more applications were received in
next 8 days resulting in accumulation of 575 applications till the declared cut-off
date of 01.10.2007. This spurt in applications indicated that the applicants were
aware that spectrum was a scarce resource and such scarcity would become acute
after this round of spectrum allocation, leaving little or no spectrum for future
allocations. Further, even this cut-off date was not taken into consideration and on
the orders of Hon'ble MoCIT, only applications received upto 25 September 2007
were considered for the issue of LOI “in order to avoid legal implications” as
discussed in the succeeding paragraphs
4.2 Approval of Telecom Commission not taken
The recommendations of the TRAI (2007) were crucial from the perspective of the
management of the Telecom sector and spectrum management and yet they were not put
up to the full Telecom Commission before the acceptance of the recommendations. It is a
fact that a meeting of the internal members of the DoT was held on 10 October 2007 to
discuss the TRAI recommendations but there was nothing on record in the file to show as to
why the recommendations of the TRAI were not taken to the full Telecom Commission.

Neither the agenda papers nor minutes of the meeting of the internal members of the
Telecom Commission held on 10 October 2007 to discuss the recommendations of TRAI
were circulated among the other members of Telecom Commission i.e. Finance Secretary,
Secretary Industry, Secretary IT and Secretary Planning Commission. As such, no meeting of
the full Telecom Commission took place between the date of submission of the
recommendations of TRAI i.e. 27
August 2007 and the date of Alternatives referred to the Ministry of Law & Justice for opinion
of the Learned Attorney General of India/Solicitor General of
issue of LOI to 121 applications India for processing new applications:
i.e. 10 January 2008 to discuss n FCFS basis in chronological order of receipt of applications in
the recommendations of the each service area with 7/15 days time for compliance of LOIs
TRAI. Thus DoT chose to as per the procedure existing. Those who will comply with
LOI's conditions within stipulated time will retain the
consider the recommendations seniority of date of application for licence /spectrum.
without the benefit of the inputs n LOIs to all applicants who had applied for UASL by 25-09-
from four important secretaries 2007.
of the Government of India on n LOIs to all eligible applications received up to the cut off
date.
crucial issues related to Telecom
n Any other better approach which might be legally tenable
sector. Instead, in view of the and sustainable.
unprecedented response from
the applicants and the fact that
the DoT was not equipped to cope up with the huge demand, they approached Ministry of
Law & Justice (MLJ) with four options (Box) for their advice.
4.3 Advice of the Hon'ble Minister of Law and Justice was ignored by DoT
The heavy rush for applications – 408 new requests in 8 days- and to process them in a fair
and transparent manner was a formidable situation DoT had to face and so DoT requested
(October 2007) the Ministry of Law & Justice (MLJ) to communicate the opinion of the Ld.
Attorney General of India/Solicitor General of India to enable it to handle this
unprecedented situation in a fair and equitable manner which would be legally tenable. The
matter was considered in the MLJ and Hon'ble MLJ observed (November 2007) that “in view
of the importance of the case and the various options indicated in the statement of the
case, it is necessary that the whole issue is first considered by an Empowered Group of
Ministers (EGoM) and in that process legal opinion of the Attorney General can be
obtained.” The observation of the Hon'ble MLJ was discussed in the Ministry and was
treated as “out of context” by the Hon'ble MOC&IT and thus a reference to EGoM for
discussion and decision on this important issue was deliberately avoided.

4.3.1 The Government of India (Transaction of Business) Rules, 1961 stipulates that when
the subject of a case concerns more than one department, no decision be taken or
order issued until all such departments have concurred, or, failing such concurrence,
a decision thereon has been taken by or under the authority of the Cabinet. The
second schedule (Rule 7) of TOB Rules further details the cases which shall be
brought before the cabinet for decision which includes the following:
n cases involving financial implications on which the Minister of Finance

desires a decision of the Cabinet.
n cases in which a difference of opinion arises between two or more Ministers

and a Cabinet decision is desired.
DoT justified its actions on the ground that the reference was made to the Ministry
of Law and Justice in the background of large number of applications and that their
advice was discussed in the Department and the existing policy for grant of UAS
licences was approved by the Hon'ble MoC& IT as any change could have led to
litigation and not sustainable under law. They further stated that the issue solely
falls under the purview of the Ministry of Communications & IT as per Government
of India (Transactions of Business Rules), 1961 and did not require any consultation
in GoM/Cabinet for taking decisions and it was wrong to perceive that any matter
which is placed before the Ministry of Law for taking legal advice and not accepted
by the concerned Ministry, is to be placed before the GoM or the Cabinet. Moreover,
the need for forming an EGoM arises when a new policy is being framed and in this
particular issue, no new policy for grant of UASL was being framed.
The contention of the DoT is untenable as rejection of the advice of Hon'ble MLJ to
have detailed deliberations on the issues in the EGoM on the ground that changes in
policy might lead to litigation goes against the well established and time-tested
procedure of functioning of the Government and the collective responsibility of the
Union Cabinet. Ministry of Law and Justice is the nodal authority in the Government
for providing legal opinion and to say that implementation of their
advice/suggestion would lead to litigation appear to be showing lack of trust in the
nodal department of the Government of India dealing with Law and Justice and is
thus at best a questionable stand. A prudent decision would have been to go by the
advice of Law Ministry on the issue of legal tenability and to discuss threadbare the
various issues involved in issue of new licences at an inter ministerial forum.
Thus, the difference of opinion between the Hon'ble MOC &IT and the Hon'ble MLJ
regarding referring the matter to an EGoM remained unresolved and the DoT went
ahead with processing of large number of applications without deciding on the issue
of legal tenability raised by them.

4.4 Hon'ble Prime Minister's suggestion to reconsider the pricing was ignored
On 2 November 2007, Hon'ble Prime Minister wrote to Hon'ble MoC&IT that given the back
drop of inadequate spectrum and large number of applications received for fresh licences,
DoT should consider (i) introduction of a transparent methodology of auction, wherever
legally and technically feasible and (ii) revision of entry fee, which is currently bench marked
on an old figure. The Hon'ble MoC&IT, on the same day replied that “the issue of auction of
spectrum was considered by the TRAI and the Telecom Commission and was not
recommended as the existing licence holders who are already having spectrum up to 10
MHz per Circle have got it without any spectrum charge. It will be unfair, discriminatory,
arbitrary and capricious to auction spectrum to new applicants as it will not give them
level playing field.
I would like to bring it to your notice that DoT has earmarked totally 100 MHz in 900 MHz
and 1800 MHz bands for 2G mobile services. Out of this, so far a maximum of about 35 to
40 MHz per Circle has been allotted to different operators and being used by them. The
remaining 60 to 65 MHz, including spectrum likely to be vacated by Defence Services, is still
available for 2G services.
Therefore, there is enough scope for allotment of spectrum to few new operators even
after meeting the requirements of existing operators and licensees. An increase in number
of operators will certainly bring real competition which will lead to better services and
increased teledensity at lower tariff. Waiting for spectrum for long after getting licence is
not unknown to the Industry and even at present Aircel, Vodafone, Idea and Dishnet are
waiting for initial spectrum in some Circles since December 2006”.
It is to be noted that teledensity had already reached 18.22 per cent (2007) (as against a
target of 15 by 2010, as envisaged in NTP-1999).
Chart - 4.1 Teledensity (Number of telephones per 100 population)
110.69
Urban
88.34
(In Per cent)
Total
Rural
66.39
48.10 47.88
38.28 36.98
26.88 26.22
20.79
14.32 18.22
10.37 12.2 12.74 21.19
7.02 8.95 15.11
4.29 5.11 5.89 9.46
3.58 1.73 2.34
0.93 1.21 1.49 1.55
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Y E A R
The telecom sector had reached a phase where, greater consideration was required
to be given to issues of efficient use of spectrum, reflecting its scarcity value in its
pricing and recovery of additional cost to Government in making the spectrum
available. A trade off between assigning more spectrum to an optimum number of
operators per service area with a view to reduce their net-work cost and invite more
competition by no capping, was required to be considered carefully before
committing a substantial part of available spectrum. Further Hon'ble MOC&IT was
incorrect to say that the issue of auction of spectrum was considered by the
Telecom Commission and was not recommended. As stated in the paragraph(4.2),
the recommendations of the TRAI ( August 2007) was never discussed in a meeting
of the full Telecom Commission between date of submission of the TRAI's
recommendations and date of the Hon'ble MoC&IT letter i.e. 2 November 2007.
On the same day through another communication the Hon'ble MoC&IT informed
the Hon'ble Prime minister that “the Department wanted to examine the
possibility of any other procedure in addition to the current procedure of allotment
of licences to process the huge number of applications. A few alternative
procedures as debated in the Department and also opined by few legal experts
were suggested by the Department of Telecom to Ministry of Law & Justice to
examine its legal tenability to avoid future legal complications, if any. Ministry of
Law and Justice, instead of examining the legal tenability of these alternative
procedures suggested referring the matter to Empowered Group of Ministers.
Since, generally new major policy decisions of a Department or inter-
departmental issues are referred to GoM, and needless to say that the present
issue related to procedures, the suggestion of Law Ministry is totally out of
context. Now, the Department has decided to continue with the existing policy
(first-come-first-served) for processing of applications received up to 25th
September 2007, i.e. the date when the news-item on announcement of cut-off
date appeared in the newspapers. The procedure for processing the remaining
applications will be decided at a later date, if any spectrum is left available after
processing the applications received up to 25th September 2007”.
4.4.1 Ignoring the advice of Law Ministry and the Hon'ble Prime Minister, Hon'ble
MoC&IT therefore decided to go ahead with arbitrarily deciding that the cut off date
for issue of LoI would be advanced to 25th September 2007 and the applications
received would be decided on FCFS basis.

BOX-3 Chronology of Events
Date Procedural Details
24/09/2007 Hon'ble MoC&IT conveyed through press release that no application under UAS will
be accepted after 01/10/2007.
18/10/2007 Ministry accepted the Recommendations of TRAI. LoIs were issued to the Reliance
Communications Ltd and two others for dual technology.
19/10/2007 A Press release was issued stating that the TRAI's recommendations have been
accepted by the DoT. Policy for the dual technology was also announced.
26/10/ 2007 Ministry of Law & Justice (MLJ) was requested to communicate the opinion of the Ld
Attorney General of India/Solicitor General of India on the procedure to be followed.
1/11/2007 Opinion of the Hon'ble MLJ was received by DoT.
02/11/2007 DoT decided that only the applications received up to 25/09/2007 shall be processed
which were 232 in number.
02/11/2007 Hon'ble PM wrote to Hon'ble MoC&IT to consider auctioning of spectrum and

revision of entry fee in a fair and transparent manner.
02/11/2007 Hon'ble MoC&IT wrote to Hon'ble PM that sufficient 2G spectrum available to cater
to the requirement of few new operators and more no. of operator will increase tele-
density and bring down the tariff.
02/11/2007 Hon'ble MoC&IT again wrote to Hon'ble PM justifying the decision of amendment of
cut off date and termed the suggestion of Ministry of Law and Justice for GOM as 'out
of context'.
26/12/2007 Hon'ble MoC&IT again wrote to Hon'ble PM regarding the personal discussion with
Hon'ble PM and External Affairs Minister on various issues including issue of dual
technology and issue of new licences.
31/12/2007 Secretary DoT and Member (Finance) DoT retired.
03/01/2008 Hon'ble PM acknowledged the letter dated 26/12/2007 sent by Hon'ble MoC&IT.
09/01/2008 A meeting of full Telecom Commission was scheduled for 09.01.2008 to discuss issues
of new licences and allocation of spectrum to existing as well as new players by
auctions postponed to 15.01.2008.
10/01/2008 Decision regarding cut off date being 25/09/2007 was conveyed through a Press
Release in the afternoon of 10 January 2008.
10/01/2008 Through a press release, companies who had submitted applications on or before 25
September 2007 were advised to depute their authorized representative at 3.30 PM
on 10 January 2008 to collect response(s).
10/01/2008 Out of 232 applications received up to cut off date 121 LoIs were issued to applicants
found eligible.
10/01/2008 All applicants communicated their acceptance.78 applicants complied with terms and
conditions including submission of entry fee, PBG and FBG.
11/01/2008 Remaining 43 applicants complied with terms and conditions.
25/01/2008 All UAS licenses were issued to be effective from 25 January 2008.

4.5 Concerns of the MoF and Finance Wing of the DoT on continuance of entry
fee fixed in 2001 were overlooked
The MoF was insisting on the issue of inclusion of spectrum pricing in the ToR of GoM
constituted for spectrum vacation since early 2006. In June 2007, Finance Secretary had
informed the DoT that the matter had been discussed at Hon'ble Finance Minister's level
and Ministry felt that a sound policy on spectrum pricing was required. The Ministry again in
November 2007 questioned the sanctity of continuing with a price determined way back in
2001 without any indexation or current valuation and sought review of the matter. DoT,
conveniently quoting the 4 year old Cabinet decision of October 2003, justified to the MoF
that it was authorised to calculate the entry fee for licenses depending on the date of
payment, on the principles of TRAI recommendations of 2003 and that TRAI in 2007 had also
not recommended any revision. Agreeing with MoF's views, Member (F) of the DoT had also
sought (November 2007) an in-depth analysis of the issue prior to taking any further action
to which Secretary (DoT) also concurred. Hon'ble MoC&IT observed on the file “Officers
have neither up to date knowledge of UAS guidelines nor have bothered to carefully go
through file……..These types of continuous confusions observed on the file whoever be the
officer concerned does not show any legitimacy and integrity but only their vested
interest…….the matter of entry fee has been deliberated in the department, several times
in the light of various guidelines issued by the department and recommendations of TRAI
and accordingly decision was taken that entry fee need not be revised.”
The action suggested that Hon'ble MoC&IT was not open to the idea of discussing and
deliberating the issues involved at appropriate levels even when there was a high risk of
huge revenue loss to the Government exchequer.
This is further corroborated by the fact that the date of the meeting of Telecom Commission
which was scheduled to discuss the issues relating to issue of pending applications for
licence and pricing of spectrum was postponed from 9 January 2008 to 15 January 2008.
Without Telecom Commission getting an opportunity to discuss the matter, 121 LoIs were
issued on 10 January 2008. The Hon'ble Finance Minister also held the view (15 January
2008) that “Spectrum is a scarce resource. The price for spectrum should be based on its
scarcity value and efficiency of usage and the most transparent method of allocating
spectrum would be through auction”. However, the Hon'ble Finance Minister after the issue
of 121 LOIs by the DoT suggested in January 2008 to treat the previous issue of licences as a
closed chapter and recommended that the price of spectrum be discovered through an
auction process in future.
The Government had long been aware that spectrum was a scarce natural resource which
needed to be priced appropriately so as to ensure its optimal utilisation. The entire
chronology of events as detailed in the Box and the manner in which it was handled, if seen
with the Hon'ble Finance Minister's proposal of January 2008, suggest that the DoT acted in
haste while issuing new UAS licences at a price discovered 7 years back, which deprived it of
an opportunity to discover the economic value of a scarce natural resource. The availability
of the spectrum is limited and the Government has to incur huge expenditure for getting it

vacated from Defence authorities by
Who all were not in favour of hasty
providing alternate media to them.
allotment of licenses without
revision of spectrum prices?
MoF should have insisted for a Cabinet
decision, in view of the following; PRIME MINISTER
MINISTER OF LAW AND JUSTICE
n Treating the authorisation allowed
by the Cabinet in 2003 for calculation FINANCE SECRETARY
of entry fee for migration of existing
SECRETARY, DoT
operators (BSOs & CMSPs) to UASL
regime based on the formula given MEMBER (FINANCE)
by the TRAI (October 2003) as an
open-ended one was a wrong
interpretation of the DoT and particularly when Cabinet in the same decision had
defined the role of MoF in the matter of spectrum pricing.
n Government of India (Transaction of Business) Rules 1961 provided for necessity of

matter being placed before the Cabinet in case either involving financial implication
on which the Minister of Finance desires or a difference of opinion arises between
two or more Ministers
It was noted that on the issues of auction and allotment of 3G/BWA spectrum, MoF had
quoted the above two grounds for participating in the consultative process with the DoT.
The DoT informed (July 2010) that there was no undue haste in the issue of LOIs since a
decision to process applications for grant of UAS licence to those who applied up to 25.09.07
was taken on 2 November 2007 and reports were already appearing in newspapers about
the cut off date. The DoT also stated that pricing of spectrum was not on the agenda of the
Telecom Commission meeting which was scheduled for 15.01.2008. The reply of the DoT is
not tenable as they went ahead with the process of allocation of UAS licenses without any
deliberations either in the High Powered Telecom Commission or EGoM as suggested by the
Hon'ble MLJ. The DoT also gave a confusing and misleading reply to the Finance Secretary to
side track the valid issues raised by the Finance Secretary.
4.6 Multiple Activities on 10 January 2008
On 10 January 2008 afternoon, the DoT through the Press Information Bureau informed that
all eligible applicants who applied for UAS licences up to 25 September 2007 would be
issued LoIs. It was also mentioned in the press release that the DoT has been implementing a
policy of FCFS for the grant of UAS licences under which initially an application which is
received first will be processed first and thereafter if found eligible will be granted LoI and
then who so ever, complies with the condition of LoIs first will be granted UAS licence.”
This stipulation introduced for the first time by the DoT took away the relevance of the date
of application and grossly violated the sanctity and transparency of the FCFS policy being
followed hitherto by the DoT.

Audit found that in the draft press release, the DoT had proposed to maintain the inter-se
seniority of applicants based on their date of applications, if more than one applicant
complied with LOI conditions on the same day. However, the Hon'ble MoC&IT personally
deleted this provision (Annexure I) from the press release observing that the proposal was
“not necessary as it is a new stipulation” while at the same time conveniently forgetting
that the basic stipulation “who so ever, complies with the condition of LoIs first will be
granted UAS licence” was also a new stipulation being added for the first time.
4.6.1 Out of 232 applications received from 21 applicant Companies till the changed cut
off date, 121 applications from 16 applicant Companies were found eligible. The
DoT issued another press release on the same day (2.45 p.m) asking all applicants to
assemble at the DoT Hqrs within forty five minutes (i.e. by 3.30 p.m) to collect letters
in response of their application. All the eligible applicants collected their LoIs and
acceptance of 120 applications was received on the same day. Compliance of terms
and conditions of LoI was also made for 78 applications on the same day and the
remaining on the following day. The change in the method for applying FCFS criteria
from receipt of application to compliance of LoI made the applicants rush to comply
with the LoI conditions within a few hours and in as less as an hour in respect of
24 service areas. (Annexure II). It would therefore be evident that though the DoT
took 100-550 days to process the applications as against prescribed 30 days under
its so-called FCFS policy, it gave not even an hour to the applicants to assemble at the
DoT premises to collect LOIs and less than half a day to comply with the LOI
conditions.
4.6.2 13 Applicants submitted pre-dated demand drafts
It was noticed that 13 applicants were even ready with Demand Drafts (DDs) drawn
on dates prior to the notification of cut off date.(Annexure III) An applicant also
submitted the Performance Bank Guarantee (PBG) and Financial Bank Guarantee
(FPG) of the Punjab National Bank (Annexure IV) prepared on 10 January 2008 in
Mumbai to Ministry on the same day. Evidently, these applicants, had advance
information about the issue of this notification by the DoT which enabled them to
take appropriate advance action to draw the DDs and prepare other relevant
documents for complying with the LoI conditions in spite of the changed time limit
for compliance from 15 days to about half a day.
4.6.3 DOT's own “FCFS” Policy not followed
Audit noted that though the DoT had decided to follow the policy of the first-come-
first-served (FCFS) and the Hon'ble MOC&IT in his communication dated 2
November 2007 had informed the Hon'ble Prime Minister that the processing of
applications was to be on FCFS basis, the DoT deviated from the FCFS policy in letter
& spirit.

To start with, Hon'ble MoC&IT
First-Come-First-Served (FCFS) was the
arbitrarily decided to issue Letter of
principle internally adopted in DoT for
Intents (LoIs) simultaneously to all
allocation of spectrum which was
applicants, who had submitted their
extended to issue of new UAS licenses.
applications between March 2006 and
Under the FCFS system all applications
25 September 2007 thereby depriving
are received first in the Central Registry
the applicants, who had submitted
(CR) Section of DoT where date of
their applications earlier, of their
receipt and serial numbers are posted
seniority and resultant claim to get the
on it. Priority/seniority of applications
LoIs first. Thereafter the importance
is determined based on this date of
of date of submission of application in
receipt in the CR section.
the FCFS Policy was altogether
removed by giving precedence to the
date of compliance to the LoIs. As a
result, applicants who had submitted the applications even a year later were given
the chance of getting precedence over earlier applicants if they could comply with
the LoIs conditions earlier. The last nail in the coffin of transparency and objectivity
of the FCFS policy was dealt by selectively leaking the date of issue of LoIs to a few
applicants as a result of which, they were ready with pre-dated demand drafts of
thousands of crores of rupees prior to the date of issue of the Press release calling for
applicants to collect the LoIs from DoT.
Thus the entire process of allotment of UAS licenses in January 2008 lacked
transparency and appeared to have been done with the objective of favouring a few
firms over others. As a result thereof, Swan Telecom Pvt Ltd, which had submitted
the application on 2 March 2007, was given the spectrum for the Delhi service area
on 28 August 2008 itself while Spice Communications Ltd which had submitted their
application in August 2006 has not yet been given (March 2010), spectrum for Delhi
service area. Similarly, for Maharashtra service area also, Spice Communications Ltd
(Date of application- 31 August 2006) got the spectrum in May 2009 while Unitech
and Videocon got the spectrum much earlier in September 2008 itself though they
had submitted their applications for UAS licenses more than a year later in
September 2007. Idea Cellular Limited (Date of Applications- 26 June 2006) also got
the spectrum in May 2009 while Unitech (date of Applications – 24 September 2007)
got the spectrum in September 2008.
4.6.4 DoT, in response to the audit observation informed (July 2010) that the draft press
release was changed because it was contrary to the policy of FCFS of the DoT and the
DoT had not deviated from the declared policy. The contention of the DoT appeared
to be untenable as in the FCFS system adopted by the DoT where determination of
priority of applications was dependent on the date of its receipt in the Central
Registry of the DoT, the date of compliance to LOI's conditions was of secondary
importance and was to be considered only when an applicant company did not

comply with the LoI's conditions within stipulated period of 15 days. Amendment in
the draft press release by the Hon'ble MoC&IT personally without any sound and
valid reason took away the sanctity of the date of application and the date of
compliance of LoI's conditions became the date of priority which was not the
accepted principle for FCFS being followed by the DoT till then. It was for the first
time in the history of the DoT that the date of compliance of LoI was considered as
the criterion for the issue of UAS licence.
4.6.5 DoT, quoting extensively from a letter written by the Hon'ble MoC&IT to the
Hon'ble Prime Minister, stated that the Hon'ble Prime Minister was apprised of all
the decisions taken by the DoT and the letter was acknowledged by the Hon'ble
Prime Minister. The DoT also stated (July 2010) that shortage of spectrum for GSM
services necessitated the need for limiting the number of licenses in the first phase
and the cut off date was fixed to identify them. Explaining the reason for fixing 25
September 2007 as the cut off date it was replied that in the absence of the
possibility of issuing licence and spectrum to all the applicants it was decided by the
DoT that the most appropriate way to divide the applicants into two homogenous
groups was to classify them on the basis of the date of requests i.e., applications
received prior to date of publication of press release and new applications received
after it and any other date for grant of LoI in the first phase would have been
arbitrary. Further, neither the cut-off date was advanced nor the applications for
grant of UAS licences had been rejected. The DoT also added that since the FCFS
policy has been followed without interruption, no application beyond 25.09.07 was
either prejudiced or aggrieved, adding that all eligible applicants who applied till
25.09.2007 knew that their applications were being processed by the department
for grant of licence.
4.6.6 The response of the DoT is not tenable because if availability of spectrum was the
criteria for deciding the number of licenses to be issued then fixing a cut off date for
issue of LOIs had no relevance since the senior most applicants, depending on their
date of application should have been the natural choice according to the FCFS
followed by the DoT. The admission of the DoT that some of the applicants knew
about the cut off date decided in the DoT, even before it was notified through a Press
release on 10th January 2008, only confirms that the processing of applications
lacked fairness and transparency.
4.6.7 The process followed for the allotment of UAS licenses in 2007-08 lacked
transparency and objectivity and has eroded the credibility of the DoT. It has denied
level playing field to the applicant companies. The frequent changes in FCFS criteria,
simultaneous issue of LoIs to all applicants on the same day and a large number of
applicants complying with detailed requirements of LoI (for which 15 days are
allowed as per procedure) within hours: all reflect a deliberate and unhealthy haste
on part of the DoT in going ahead with the issue of licences which tended to favour
applicants who could proactively anticipate such procedural changes well in time.

This unusual haste, in spite of repeated concerns expressed by different agencies
and by the senior officers within the Ministry raises doubts regarding the intention
of the Hon'ble MoC&IT, in going ahead with issue of licences in an arbitrary manner
without letting the matter be debated or discussed and considered at appropriate
levels. Thus the hasty actions taken by the DoT in the issue of new UAS licences and
the failure of the Ministry of Finance in prevailing on the DoT led to 2G spectrum
being doled out at a price discovered 7 years back.
How was the sanctity of DoT's own FCFS policy violated?
n Abrupt fixation of arbitrary cut off dates in September 2007 for the receipt of applications;
n Clubbing all applicants together and issuing LoIs simultaneously;
n Change in the method for applying FCFS criteria from the date of receipt of application to
date of compliance of LoIs;
n Proposal to maintain the inter-se seniority of applicants based on their date of applications, if
more than one applicant complied with LoI conditions on the same day was rejected;
n Leaking the information about date of issuing LoIs to select applicants, thereby enabling
them to keep Demand Drafts ready for payment of entry fee, FPG/PBG.
First four decisions were taken by the Hon'ble MoC&IT himself.
4.7 Issue of UAS Licence to ineligible applicants
4.7.1 The broad guidelines of the DoT (December 2005) details the eligibility conditions
for grant of Unified Access Services Licence in a Service Area. Important eligibility
conditions of the guidelines are
n The applicant must be an Indian company, registered under the Indian

Companies Act'1956.
n The Company shall acknowledge compliance with the licence agreement as

a part of Memorandum of Association of the Company. Any violation of the
licence agreement shall automatically lead to the Company being unable to
carry on its business in this regard. The duty to comply with the licence
agreement shall also be made a part of Articles of Association.
n The applicant company shall have a minimum paid up equity capital of the
amount as prescribed in the guidelines depending on the Service Area(s)
they are applying for as on the date of the application and shall submit a
certificate to this effect by the applicant's Company Secretary along with
application.
n A promoter company/ legal person cannot have stakes in more than one
Licensee Company for the same service area. No single company/ legal

person, either directly or through its associates, shall have substantial
equity holding in more than one Licensee Company in the same service area
for the Access Services namely; Basic, Cellular and Unified Access Service.
'Substantial Equity' was defined as equity of 10% or more.
n The applicant and promoters of the applicant company should have a

combined net-worth of amount as prescribed in the guidelines depending
on the service Area(s) they are applying for. The net-worth of only those
promoters shall be counted, who have at least 10 % equity stake or more in
the total equity of the company.
n In case the applicant is found to be not eligible for the grant of licence for
Unified Access Service, the applicant shall be informed accordingly.
Thereafter the applicant is permitted to file a fresh application if so desired.
Each applicant Company was required to provide inter alia following information/
documents for each service area separately:-
n Certified copy of Certificate of Registration along with Articles of Association

and Memorandum of Understanding. (Company Secretary to certify the
copy);
n Paid up capital as on the date of application (Certificate from Company

Secretary certifying the paid up capital to be provided.);
n Details/para no. of Memorandum of Association of Company for

compliance to Clause 5.G (iii) of guidelines dated 14.12.2005;
n Power of Attorney by Resolution of Board of Directors that the person

signing the application is an authorized signatory.
The Applicant company was also required to give an undertaking to the effect that if
the application was found to be incomplete in any respect and/or if found with
conditional compliance, the same was to be summarily rejected. The applicant was
also required to certify that if at any time, any averments made or information
furnished for obtaining the licence was found incorrect, then his application and the
licence if granted thereto on the basis of such application shall be cancelled.
Section-18(2) of the Companies Act, 1956 stipulates that a certificate of registration

by the Registrar of Companies shall be conclusive evidence that all the requirements
of the Act with respect to the alteration and the confirmation thereof has been
complied with, and henceforth the memorandum so as altered shall be the
Memorandum of the Company. Section 19(1) provides that no alternation will have
any effect until it has been duly registered in accordance with the relevant
provisions of the Act.

4.7.2 Verification of the files of the DoT and public documents accessed from the
Ministry of Corporate Affairs, Government of India, New Delhi, revealed that as
many as 85 Licenses out of the 122 new licenses issued to 13 Companies in 2008
were granted to those companies which did not satisfy the eligibility conditions
prescribed by the DoT. All 85 licenses were given to companies which did not have
the stipulated paid up capital at the time of application. Further, 45 out of these 85
licenses were issued to companies who failed to satisfy conditions of main object
clause in their Memorandum of Association. Details are discussed below:
4.7.3 Misrepresentation of facts by the nine real estate companies
Six newly incorporated applicant companies* belonging to Unitech Group (Brand

name Uninor) had submitted their applications for grant of UAS licenses for 20
service areas to the DoT on 24 September 2007. Along with their applications, these
companies had submitted copies of their Memorandum of Association/ Articles of
Association (MOA/AOA) indicating the main object clause of Telecom Sector thereby
claiming to meet the eligibility criterion for the grant of UAS licence.
On verification, it was revealed that all these companies had suppressed the fact of
conditional nature of certification of registration done by the Registrar of
Companies (ROC) on 20 September 2007 while registering the alterations in the
main object clause in the MOA/AOA of these Companies. The ROC while certifying
the alteration of the main object clauses of all six companies had stated that the
certificate was subject to the change of name of the Company. Since in terms of
Section 21 of the Companies Act 1956, the change of name of the Company could be
done only with the approval of the “Central Government signified in writing”, the
condition of the change of name of these applicant Companies was met in May 2008
only. As a result, all these six new companies were registered afresh with the new
names in May 2008 by the ROC. Hence the alteration of the MOA of these
Companies became effective in May 2008 only. As a result thereof, the MOA of these
companies did not permit them to operate in the telecom sector on the date of
application i.e. 24 September 2007. Hence, they were ineligible for the grant of UAS
licenses.
These six companies had suppressed the fact of conditional certification of the
alterations in the MOA/AOA by the ROC while submitting their applications for UAS
licence on 24 September 2007. All these companies also misrepresented the altered
MOA/AOA as the original MOA/AOA in their applications before DOT. The
submission of the altered MOA/AOA of the Companies without full disclosure of the
factual position of the alteration of the main object clause in the MOA/AOA and their
conditional registration by the ROC was a fraudulent act of these six companies with
the malafide intentions of obtaining the UAS licenses for 20 service areas by
misleading the DoT.
*
Unitech Builders & Estates Pvt. Ltd, Hudson Properties Pvt. Ltd, Nahan Properties Pvt. Ltd, Aska Projects Ltd, Volga Properties
Pvt. Ltd, Adonis Projects Pvt. Ltd

4.7.3.1 Azare Properties Limited and Unitech Infrastructures Private Limited (Brand
name Uninor) also misrepresented the altered MOA/AOA as the original
MOA/AOA along with their applications to the DoT. Further they suppressed the
fact that alterations had not been registered by the ROC as yet on the date of
submission of their application. The ROC while certifying the alteration of the
main object clauses in the MOA/AOA of these companies on 9th and 5th October
2007 respectively had also directed that the certificate was subject to the change
of name of the Company. The directive of the ROC was complied with only in May
2008 and thus the alteration of the MOA of these Companies became effective in
May 2008 only. As a result thereof, the MOA of these companies did not permit
them to operate in the telecom sector on the date of application i.e. 24 September
2007. Hence, they were also ineligible for the grant of UAS licenses.
Further, the submission of the altered MOA/AOA of the Companies as the original
MOA/AOA along with their applications to the DoT without full disclosure of the
alteration of the main object clause in the MOA/AOA and their non registration by
the ROC was of the nature of a fraudulent act of these two companies for
obtaining the UAS licenses for 2 service areas by misleading the DOT.
4.7.3.2 Allianz Infratech Private Limited (Merged with Etisalat DB Telecom Private
Limited), in their applications to the DoT on 5 September 2007 submitted the
MOA/AOA of the company, which didn't include the telecom sector in their main
object clause. Hence the application should have been rejected forthwith. Even
the alteration in the main object clause of the MOA of the Company was certified
by the ROC on 26 October 2007 only. Thus they were also not eligible for grant of
UAS licence on the date of submission of their application in September 2007.
4.7.3.3 Computer Software Company also misrepresented facts
Shipping Stop Dot Com (India) Private Limited (later on changed to Loop Telecom
Private Limited) also submitted their applications for grant of UAS licenses for 21
service areas on 3 September 2007 to the DoT without disclosing the fact of non
registration of alteration of the main object clauses in the MOA/AOA with the ROC
as on the date of the application. The company had changed the main object
clauses in their MOA/AOA so as to include the telecom sector in their MOA/AOA
but these alterations were registered by the ROC on 28 September 2007 only. Thus
they were also not eligible for grant of UAS licence on the date of submission of
their application in September 2007.
Further, the submission of the altered MOA of the Company by the Loop Telecom
Private Limited suppressing the fact of non registration of the alterations in the
main object clause of their MOA/AOA by the ROC on the date of application was
also in the nature of a fraudulent act with the intention of fulfilling the eligibility
criterion prescribed for UAS licenses.

4.7.4 False and fictitious claims of higher Paid up Capital by 13 Companies
Paid up capital of the applying Company was one of the important conditions
prescribed for obtaining a UAS Licence. The broad guidelines of the DoT (December
2005) prescribe that the applicant company shall have a minimum paid up equity
capital of ` 3-10 crore depending on the Service Area(s) (Service Areas A- ` 10 crore,
B- ` 5 crore and C - ` 3 crore) as on the date of the application and shall submit a
certificate to this effect by the applicant's Company Secretary along with application.
Further the Companies Act 1956 prescribes the procedure to be followed for
increase in the authorised share capital of a company. Only after authorised share
capital is increased and registered with ROC, the procedure for increasing the Paid up
capital could be undertaken by a registered Company.
4.7.4.1 13 Companies did not have the requisite Paid up Capital
13 Applicant Companies, which had applied for 123 UAS licenses and were
granted 85 UAS licenses, did not have the requisite authorised share capital on the
date of submission of the applications. Hence the question of their meeting the
eligibility criterion of the Paid up capital as on the date of application did not arise.
Of these, eight applicants* belonging to Unitech Group (Brand name Uninor) had
been incorporated in August-September 2007 with an authorised share capital of
` 5 lakh each. All these eight companies passed the special resolutions for increase
in the authorised share capital between 2 PM to 5 PM on 20 September 2007 in the
extra-ordinary general meetings of the respective companies and deposited the
requisite stamp duties on 3 October 2007 for increase in the authorised share
capital. After they submitted the requisite applications along with the proof of
payment of stamp duties on 5 October 2007, the certificate of the registration of
the increase in the authorised share capital was issued by the ROC only on 8/11
October 2007. Thus the claim of the higher paid up capital of these companies on
the date of submission i.e. 24 September and the supporting certificates of the
company secretaries of these companies submitted along with their applications
was false and fictitious.
4.7.4.2 Another Company Allianz Infratech Private Limited, in their applications to the
DoT on 5 September 2007 claimed the paid up capital of ` 10 crore as on the date
of application.
Scrutiny of records by Audit revealed that the paid up share capital of this
company as on the date of application was ` 5 lakh only. Though they claimed that
they had increased the authorised share capital to ` 10 crore through the special
resolution on 1 September 2007 in the extra-ordinary general meetings of the
company, verification of the records revealed that they deposited the requisite
*
Unitech Infrastructure Pvt. Ltd., Unitech Builders & Estates Pvt. Ltd., Azare Properties Ltd, Hudson Properties Pvt. Ltd., Nahan
Properties Pvt. Ltd.,Aska Projects Ltd,Volga Properties Pvt. Ltd., Adonis Projects Pvt. Ltd.

stamp duties (Annexure V) for enhancement in the authorised share capital on 24
December 2007 and Form No 5 along with other papers with the ROC on 27
December 2007 only for registration of increase in the authorised share capital of
the company. They also violated the provisions of the Section 18 (1) of the
Companies Act which provides that a certified copy of the order confirming the
alterations in the MOA/AOA shall be filed by the Company within three months
from the date of the resolution with the ROC. Hence their claim of the paid up
capital of ` 10 crore as on 5 September 2007 was false, fictitious and without any
basis.
4.7.4.3 Shipping Stop Dot Com (India) Private Limited (later on changed to Loop Telecom
Private Limited) also made a patently false claim of the paid up capital of ` 130.65
crore through their company secretary V V Chakradeo & Deo while submitting
their applications for grant of UAS licenses for 21 service areas on 3 September
2007 to the DoT. Audit found that the Company had deposited the statutory stamp
duties of ` 18.87 lakh for increase in the authorised share capital from ` 5.20 Crore
to ` 131 crore on 25 September 2007 and submitted the form 5 along with the
proof of payment of stamp duty on 24 October 2007 to the ROC Delhi for
registering the increase in the authorised share capital to ` 131 crore. The question
regarding any increase in the paid up capital beyond ` 5.20 crore could therefore
arise on or after 24 October 2007 only. Thus the certificate given by the Company
for the claim of the paid up capital of ` 130.65 crore through their company
secretary V V Chakradeo & Deo at the time of submission of application for UAS
licence was a fictitious document submitted to the DoT with a malafide intention
to secure the UAS licence.
4.7.4.4 Datacom Solutions Private Limited (later changed to Videocon

Telecommunications Limited) while submitting their application for the grant of
22 UAS licenses on 28 August 2007 made a false claim of the paid up capital of
` 150 crore through their company secretary although the MOA and AOA attached
with the applications indicated that the authorised share capital of the company
as ` 1.00 lakh only. Since the requirement of the requisite amount of the paid up
capital was an important eligibility criterion, their applications ought to have been
rejected forthwith. However, on 27 November 2007, the company suo-motto
submitted a so-called “correct” version of MOA/AOA as on 28 August 2007 stating
that they had submitted an old version of MOA/AOA inadvertently along with the
application. The new version of MOA/AOA claimed to have increased the
authorised share capital from ` 1.00 lakh to ` 150 crore through an ordinary
resolution passed in the extra-ordinary general meeting on 27 August 2007 i.e. the
day preceding the date of submission of applications by the Company.
Since there is a procedure prescribed in the Companies Act for effecting increase
in the authorised share capital of a company, the Company could under no
circumstances have a paid up capital of ` 150 crore on 28 August 2007 and hence

the certificate furnished by the Company Secretary of the Company appeared to be
false. The DoT failed miserably to do any due diligence in the examination of claims
of the company even when the Company claimed to have passed the resolution
enhancing the authorised share capital on the preceding day of the date of
application of the applicant company.
4.7.4.5 S Tel Private Limited, a company incorporated on 19 June 2007 with an authorised
share capital of ` 10 lakh, applied for 6 UAS licenses on 7 July 2007 claiming the paid
up capital of ` 18 crore on the basis of increase in the authorised share capital
through a special resolution in the extra ordinary general meeting on 2 July 2007.
Audit found that the company submitted the request to the ROC for registering the
resolution only on 3 August 2007. Hence the question of the paid capital of ` 18
crore on the date of application did not arise when the ROC had not even registered
the special resolution approving the increase in the authorised share capital as of 3
August 2007. Thus S Tel was ineligible to get the 6 UAS licenses from DOT.
Major Deficiencies in the Applications of UAS Licensees

Sr. Name of Applicant Date of Date of No. of
No. Company/Changed Incorporation application licenses Major shortcomings observed
name of the Company issued
1. Unitech Infrastructure 10 August 2007 24.09.2007 1 n The business activity in the main
Pvt. Ltd. ( Brand name object clause of MOA was real
Uninor) estate instead of telecom as the
resolution effecting the alteration
was not yet registered as on the
date of application;
n Suppressed the non - registration
of alteration in the main object
clause of MOA by ROC;
n Authorised share capital was only
` 5 lakh against the requirement
of ` 10 crore;
n Deposited the stamp duties for
increase in the authorised share
capital on 3 Oct,2007;
n Registration of the resolution
effecting the increase in the
authorised share capital was
done on 11 October 2007;
n Submitted false certificate from
Company Secretary in respect of
Paid up capital;
2. Unitech Builders & 10 August 2007 24.09.2007 1 n The business activity in the main
Estates Pvt. Ltd. object clause of MOA was real
(Brand name Uninor) estate instead of telecom as the
condition prescribed by ROC
while doing the registration of
resolution was not yet met;
n Suppressed the conditional
registration of alteration in the
main object clause of MOA by
ROC;


of ` 10 crore;
effecting increase in the
Paid up capital;
3. Azare Properties Ltd 1 August 2007 24.09.2007 1 n The business activity in the main
(Brand name Uninor) object clause of MOA was real
estate instead of telecom as the
clause of MOA;
of ` 10 crore;
Paid up capital ;
4. Hudson Properties 1 August 2007 24.09.2007 1 n The business activity in the main
Pvt. Ltd. ( Brand object clause of MOA was real
name Uninor) estate instead of telecom as the
ROC;
of ` 10 crore;

n Registration of resolution
Paid up capital ;
5. Nahan Properties 16 August 2007 24.09.2007 6 n The business activity in the main
Pvt. Ltd. (Brand object clause of MOA was real
name Uninor) estate instead of telecom as the
ROC;
` 5 lakh against ` 22 crore;
Paid up capital;
6. Adonis Projects Pvt. 28 August 2007 24.09.2007 6 n The business activity in the main
Ltd. (Brand name object clause of MOA was real
Uninor) estate instead of telecom as the
ROC;
of ` 26 crore;
Paid up capital;

7. Aska Projects Ltd. 16 August 2007 24.09.2007 3 n The business activity in the main
(Brand name Uninor) object clause of MOA was real
estate instead of telecom as the
ROC;
of ` 25 crore;
Paid up capital ;
8. Volga Properties 1 September 24.09.2007 3 n The business activity in the main

Pvt. Ltd. 2007 object clause of MOA was real
(Brand name Uninor) estate instead of telecom as the
ROC;
of ` 25 crore;
done on 8 October 2007
Paid up capital

9. Shipping Stop Dot 12 March 1997 03/09/2007 21 n The business activity in the main
Com (India) Private object clause of MOA was to
Limited ( Now Loop design, develop, sell, maintain
Telecom Pvt. Ltd) computer software and
programmes as the resolution
effecting the alteration was not
yet registered as on the date of
application;
n The resolution effecting the
alterations in main object clause
of the MOA to include the
telecom sector was registered by
the ROC on 28 September 2007
only;
` 5.20 crore against the
requirement of ` 128 crore;
capital on 25 Sept. 2007;
n Request for Registration of
capital was submitted on 24
October 2007;
Company Secretary re. Paid up
capital ;
10. Allianz Infratech (P) 21 December 5/09/2007 2 n The business activity in the main
Ltd. (merged with 2006 object clause of MOA was real
Etisalat DB) estate instead of telecom as the
of ` 8 crore;
capital on 24 December 2007;
n Form No 5 along with other
papers to increase the
submitted in ROC on 27
December 2007
capital ;

11. Datacom Solutions 7 June 2007 28/08/2007 21 n Suppressed the non - registration
Pvt. Ltd. (Changed of the resolution effecting
to Videocon alteration in the MOA effecting
Telecommunications increase in the authorised share
Ltd.)
capital by ROC;
of ` 138 crore;
n Increased authorised share
capital on the day preceding the
date of submission of application
through a resolution;
n Submitted false certificate re.
Paid up capital, though the
resolution effecting the increase
in the authorised share capital
and alterations in the MOA/AOA
was not yet registered by ROC;
12. S Tel Ltd. 19 June 2007 07/07/2007 6 n Suppressed the non - registration
of alteration in the MOA/AOA
regarding increase in the
authorised share capital
` 10 lakh against the
requirement of ` 18 crore as on
the date of application;
n Submitted the form for
Registration of the resolution
authorised share capital on 3
August 2007;
capital though the resolution
authorised share capital and
alterations in the MOA/AOA was
not yet registered by ROC;
13. Swan Telecom Private 13 July 2006 02/03/2007 13 n Suppressed the non - registration
Limited (Now Etisalat of alteration in the MOA/AOA
DB Telecom Private regarding increase in the
Limited) authorised share capital done on
the preceding day i.e. 1 March
2007;
n Deposited the stamp duties and
Form 5 to ROC Mumbai for
registering the resolution
authorised share capital on 14
March 2007;
capital;

n Net worth of ` 314.7 crore

claimed on behalf of Reliance
Telecom Ltd, whose share was
claimed to be less than 10%, was
not to be included while
computing the net-worth of the
applicant company.
It would thus appear that the DoT miserably failed to do the necessary due diligence
in the examination of the applications of these applicants though they took more
than 3-9 months to process these applications as against the prescribed period of
30 days.
4.7.4.6 Swan Telecom Private Limited (changed to Etisalat DB Telecom Private Limited)
applied for grant of UAS licence in 13 service area in March 2007. In compliance to
substantial equity clause the applicant declared the following equity structure:-
BOX-4
Sl Name of the Shareholder No. of Equity No. of Value of % of Total

No. share @ ` 10 Performance share share
per share share @ 1 (in `) holding
per share
1 Tiger Traders Pvt. Ltd. 98219000 – 98,21,90,000 89.29%
2 Reliance Telecom Limitied 10791000 – 10,79,10,000 9.81%
3 Reliance Telecom Limited – 9920000* 99,20,000 0.90%
TOTAL 110,0020,000 100%
(Audit Finding: *8% non-cumulative redeemable preference shares (NCRPS) of ` 1 each at a premium of ` 999. Thus each
preference share was at the value of ` 1000. The total equity/ stakes of RTL in the Swan Telecom was of ` 992 cr +10.7910 cr =`
1002.7930 crore as against equity holding of ` 98.2190 crore by the majority share-holder-Tiger Traders Private Ltd.)
From the above declaration of the Company for UAS licence, it was evident that at
the time of applying for UASL, the equity stakes of Reliance Telecom Ltd in Swan
Telecom Private Limited was 10.71%. Since Reliance Telecom Ltd were operating in
all the service areas for which Swan Telecom Limited had applied for UASL, the
application of Swan Telecom Private Limited was not in conformity with the UASL
Guidelines, and hence was not eligible to be considered. The DoT did not have any
mechanism to verify the correctness of the share holding pattern of the applicant
and hence the matter should have been referred to the Ministry of Corporate Affairs
(MoCA) as was advised by the Finance Wing of the Department. No reference,

however, was made to the MoCA and instead Swan Telecom was given an
opportunity to resubmit a revised stake holding pattern in December 2007 i.e. 9
months after their date of application which declared that Reliance Telecom
Limited had divested their entire stakes. This was accepted by the DoT and Swan
Telecom Private Limited was given the benefit of seniority from the date of their
initial application i.e. March 2007.
As Swan Telecom did not meet the eligibility criteria on the date of application, its
application should have been rejected by the DoT and the company should have
been directed to apply afresh. Even if it 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.
4.7.4.6.1 DoT stated (July 2010) that at the time of applications the equity of Reliance
Telecom was 9.81 per cent which was well within the prescribed limit of 10 per
cent. Further, the DoT quoted Section 85 explanation (2) of Companies Act, 1956
which says that “equity share capital means all capital which is not preferential
share capital”, to justify the decision to grant UASL to Swan Telecom. The DoT
further stated that in the opinion of the Ld. Solicitor General “whether the
application as originally filed was in order or not was the subject matter of
divergent opinions and a view had already been taken that if regard be given to the
equity share capital in the company, the application could not be said to be in
violation of clause 8”. In view of these clarifications, there was no favouritism in
the grant of UASL to Swan Telecom Pvt. Ltd.
4.7.4.6.2 The reply of the DoT appears to be evasive. The issues involved were financial in
nature. It would have been prudent if the DoT would have sought the opinion of
the MoF or MoCA on “Financial or Corporate matter” rather than from Solicitor
General. On verification, it was found that if the stake of RTL was considered less
than 10%, then the application of Swan Telecom would have been liable to be
rejected on the grounds of non-fulfillment of the requirement of the net-worth as
the Swan Telecom had claimed the net-worth of the applicant company only on
the strength of the RTL (` 314.7 crore ) with the contribution of the major share-
holder ( Tigers Traders Private Limited) being ` 1 lakh in their application on 2
March 2007 (Annexure VI). Audit further found that the basic claim of the paid up
capital of ` 110 crore by Swan Telecom Private Limited itself was false as the
authorised share capital of the company as on the date of application i.e. 2 March
2007 was ` 4 crore only. The company had passed a special resolution on the
preceding day i.e. 1 March 2007 to increase the authorised share capital from ` 4
crore to ` 125 crore but deposited the statutory stamp duties and submitted the
Form 5 to the ROC, Mumbai on 14 March 2007 only (Annexure V) for registration of
the increase in the authorised share capital of the company. Only after the
registration of the resolution of the Company by the ROC, the increase in the

authorised share capital would have come into effect. The question of the increase
in the paid up capital would have arisen thereafter only. Thus the paid up capital of
Swan Telecom Pvt. Ltd. was ` 4 crore on the date of application i.e.2 March 2007 and
hence they were ineligible on both account i.e. non-fulfillment of the requirement
of the net worth as well as paid up capital for grant of UAS licenses for 13 service
areas on the date of application if the reply of the DoT is accepted.
Audit also found that the email ID of the corporate as well as registered office of
the Swan Telecom Private Limited in their application dated 2 March 2007 was
shown as hari.nair@relianceada.com. The same email ID (hari.nair@
relianceada.com) also was given for the correspondence address and the
authorised contact person of the applicant company. Though the Company
Secretary Hari Nair had given a certificate(Annexure-VII) while applying for a UAS
licence for J&K Service Area in January 2007 that the Tigers Traders Private
Limited held the shares of Swan (then Swan Capital private Limited) as trustees of
Indian Telecom Infrastructure fund and these corporate beneficiaries are not part
of Reliance ADA Group and neither Shri Anil Ambani nor his family or Reliance
ADA Group companies holds any shares in these companies, holding of NCRPS of
`1 at a premium of `999 by the RTL in Swan Telecom, a newly incorporated
company with no fixed assets (The total equity/ stakes of RTL in the Swan Telecom
was of `1002.79 crore as against equity holding of `98.22 crore by the majority
share-holder-Tiger Traders Private Ltd.) raises doubts about the intention of the
RTL and the control it would exercise in a new company incorporated barely few
months ago. Hence the application of such company to enter telecom sector goes
against the intent and spirit behind the UAS guidelines, which state that “A
promoter company/ legal person cannot have stakes in more than one Licensee
Company for the same service area. No single company/ legal person, either
directly or through its associates, shall have substantial equity holding in more than
one Licensee Company in the same service area for the Access Services namely;
Basic, Cellular and Unified Access Service. 'Substantial Equity' was defined as equity
of 10% or more.” Thus it would therefore appear that Swan Telecom Private Limited
while applying for the UAS licenses in 13 Service Areas was acting as a front
company on the behalf of RTL and their application was in effect against the intent
and spirit of the UAS licensing guidelines.
To conclude, 85 licenses were issued to the Companies which suppressed facts,

disclosed incomplete information and submitted fictitious documents to the DoT
and thus used fraudulent means for getting UAS licenses and thereby access to
spectrum. Owners of these licenses, obtained at unbelievably low price, have in
turn sold significant stakes in their companies to the Indian/foreign companies at
high premium within a short period of time. The premium earned by these new
entrants to the telecom sector was nothing but the true value of the spectrum,
which should have normally accrued to the public exchequer. The DoT, on its part
failed to exercise due diligence in the processing of UASL applications and ensuring
effective verification of the documents submitted by these applicants which

reflected inadequacy in the verifications procedures that were put in place. Since
these Companies did not meet the eligibility criteria set by the DoT on the date of
their application, their applications should have been rejected and they should
have been asked to apply afresh as stipulated in the UASL guidelines.
The DoT, when pointed out the above, informed that based on the audit
observation, issue of show cause notices for termination of the UAS Licenses to all
the erring companies was being contemplated.
4.8 Access to dual technology
In November 2003, based on Cabinet decision, the DoT had issued guidelines for UAS licence
which stipulated that “the service providers migrating to Unified Access Services Licence
will continue to provide wireless services in already allocated/contracted spectrum and no
additional spectrum will be allotted under the migration process for Unified Access
Services Licence”.
In April 2007, the DoT requested TRAI to furnish their recommendations on permitting
“service providers to offer access services using combination of technologies (CDMA, GSM
and/or any other) under the same licence”. TRAI's recommendations on the issue were
received along with other recommendations in August 2007.
As per these recommendations, “A licensee using one technology may be permitted on

request, usage of alternative technology and thus allocation of dual spectrum. However,
such a licensee must pay the same amount of fee which has been paid by existing licensees
using the alternative technology or which would be paid by a new licensee going to use that
technology”. Regarding inter se priority for spectrum allocation, when the existing licensee
becomes eligible for allocation of additional spectrum specific to the new technology, such a
licensee has to be treated like any other existing licensee in the queue and the inter se
priority of allocation should be based on the criteria that may be determined by the DoT for
the existing licensee.
4.8.1 Undue benefits to Reliance Communications Limited
Four Companies Reliance Communications Ltd., Tata Teleservices, Shyam Telelink

Ltd. and HFCL Infotel Ltd. were providing CDMA based mobile service under UAS
licence. Three Companies (Reliance Communications Ltd for 20 Service Areas,
Shyam Telelink Ltd for Rajasthan Service Area and HFCL Infotel Ltd. for Punjab
Service Area) had applied for permission for using GSM technology in 2006. Since
the combination of technologies (CDMA, GSM and/or any other) under the same
licence was not permitted, DoT had not acceded to their request till April 2007.
Based on the recommendations of TRAI, the decision for use of alternate technology
was taken for the first time by the DoT on 17 October 2007. This decision, however,
was taken without referring the matter to the full Telecom Commission even when it
involved allocation of spectrum in 2007 at the 2001 price.

DoT issued a Press release in this regard on 19 October 2007. However, before
announcing the acceptance of the recommendations of the TRAI in this regard, 'in-
principle' approval for using GSM technology ( dual/alternate technology) was given,
on 18 October 2007 itself (a day before the press release) to the three operators who
had, sought for facility for using alternate technology in 2006 when it had not even
been contemplated. The undue haste shown in issuing in-principle' approval for using
GSM technology to Reliance Communication (20 service areas), Shyam Telelink Ltd.
(1 service area) and HFCL Infotel Ltd (1 service area) was not evident afterwards as
when the Tata Teleservices Ltd applied for dual technology immediately after the
issue of the Press notification on19 October 2007, LOI was not issued to them till
January 2008. Further, other applicants* were still waiting for similar licence for over
two and half years as of now.
Reliance Communication Ltd. had complied with the requirements for permission to
use dual technology on 19 October 2007 itself by depositing the non refundable entry
fee of ` 1645 crore for 20 service areas through their sister concern Reliance
Infocomm Ltd. Acceptance of bank drafts for ` 1645 crore by the orders of Reliance
Infocomm Ltd (third party) on behalf of Reliance Communications Ltd was also not in
order and shows the hurry through which entry fee was deposited. As a result,
Reliance Communications Ltd. could acquire the right for allocation of 2G spectrum in
20 service areas on the day the policy itself was announced.
4.8.2. By taking the priority date of Reliance Communications Ltd. as the date on which they
had moved application for use of alternate technology (when it was not even
formulated and permitted) i.e. 2006, they were allocated start-up spectrum on 10
and 11 January 2008 in 14 service areas (the operator withdrew request for 6 service
areas where they were already providing GSM services) ahead of other operators
who had applied for new UAS licences and whose applications were kept pending on
the grounds of non-availability of spectrum. Spectrum under dual technology was
allotted to HFCL Infotel Ltd. in Punjab only in September 2008 and Shyam Telelink
Ltd.in Rajasthan in December 2008 though these companies also applied for
spectrum under dual technology along with Reliance Communications Limited in
2006. In Delhi service area, Reliance was allocated GSM spectrum in January 2008
while Datacom Solutions Pvt. Ltd, Unitech Wireless Ltd, Spice Communications Ltd,
Loop Telecom Pvt. Ltd. and Tata Teleservices Ltd. were not allocated GSM spectrum
till September 2010.
Thus the process followed by the DoT while introducing access to the dual technology
to the existing telecom operators in India lacked transparency and fairness. Equal
opportunity was denied to other similarly placed operators who could apply for use of
dual technology, only after the formal announcement of the policy.
*
1. Tata Teleservices 2. Sistema Shyam Teleservices 3. Etisalat DB Telecom Pvt. Limited

4.8.3 Violation of 2003 Cabinet decision to allow additional spectrum at 2001 prices
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 licence with dual spectrum allocation was taken without the
matter being referred to Cabinet.
4.9 Undue advantage to Swan Telecom Pvt. Ltd in the allocation of spectrum
It was noted that the priority list was adjusted in Punjab, and Maharashtra service areas to
give undue advantage to 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. HFCL, Idea Cellular Ltd and
Unitech Wireless Pvt. Ltd. The request of Idea Cellular Ltd who was at the second place in the
priority list was, however, not considered on the grounds of its proposed merger with Spice
Communications Ltd who were offering service in Punjab service area. By keeping out Idea
Cellular Ltd from the priority list, spectrum was allocated to Swan Telecom Pvt. Ltd who was
at the 4th position on the priority list. In identical situation in Maharashtra service area,
Spice Communications Ltd was not allocated start-up spectrum citing its proposed merger
with Idea Cellular Ltd. Here too, the resultant beneficiary was Swan Telecom Pvt. Ltd.
4.9.1. As per DoT guidelines on merger of licenses in a service area, the post merger
licensee shall be entitled to the total amount of spectrum held by the merging
licensees, subject to the condition that after merger, licensee shall meet, within a
period of 3 months from the date of approval of merger by the licensor, the
prevailing spectrum allocation criterion. Hence, non allotment of spectrum to Idea
Cellular Ltd and Spice Communications Ltd on the grounds of merger was against the
DoT guidelines on the issue. Flouting the rules on both occasions by the DoT
benefited Swan Telecom Pvt. Ltd.
4.9.2 The DoT in response to the above observation (July 2010) informed that as the
merger proposal of Idea and Spice were under process, their request for initial
spectrum was not processed and kept reserved for them as per their priority of
spectrum application. Since their formal merger did not complete after several
months, the above operators were allotted initial spectrum which was kept
reserved for them. The response of the DoT ignores the fact that as per the data on
spectrum availability as on September 2008, the demand for only 3 operators could
be fulfilled in the order of their priority of application. Also, as per the priority list the
application of Swan Telecom Ltd was in the fourth position. Hence the allotment of
spectrum to Swan Telecom Ltd ahead of other companies was not as per the
approved principle of FCFS.

4.10 Value of spectrum allocated beyond the contracted quantity
It was noticed in audit that 9 operators as

per the details in the box, were allotted Name Amount of No.
additional of
spectrum beyond the upper limit laid spectrum Circles
down in the UASL agreement. Thus while (MHz)
the DoT, on one hand, was not processing Aircel 3.6 1

pending applications for licence due to Bharti 32.4 13
non availability of spectrum, on the other
BPL (Mumbai) 3.8 1
hand it was allotting spectrum to existing
operators beyond the contracted limit BSNL 61.6 19
without any upfront charges being IDEA 12.6 6

imposed or without determination of MTNL (Delhi & Mumbai) 12.4 2
market price of spectrum. Based on the Reliance 1.8 1
amount charged from CDMA operators Spice (Punjab) 1.6 1
for grant of GSM spectrum in 2007, the
Vodafone 19.6 7
value of spectrum held by these
operators beyond the contracted unit
worked out to ` 2561 crore though its market value on date would be higher.
The Technical Committee appointed by Hon'ble MoC&IT for “Allocation of Access

(GSM/CDMA) spectrum and pricing” recommended in May 2009, that the additional
spectrum assigned beyond 6.2+6.2 MHz in an service area should attract an upfront charge
equivalent to the 3G auction price from the date of assignment.
Subsequently, TRAI also recommended in May 2010 for charging the additional spectrum
held by operators beyond the licensed quantity which is under consideration of the
Government. In the event of these recommendations being accepted, the additional flow
of revenue to the Government would come to ` 36,993 crore.

4.11 Non fulfillment of the Roll out obligations by the New Telecom Licensees
Out of 122 UAS Licences awarded in 2008, 85 Licences were awarded to the six new entrants
(Unitech brand name Uninor, Swan name changed to Etisalat, Allianz since merged with
Etisalat, Shipping Stop Dot Com name changed to Loop Telecom, Datacom name changed to
Videocon and S Tel) to the telecom sector. As per the conditions of the UAS Licenses, these
licensees were required to roll out the services in the 90 % service area in Metros and 10%
District headquarters (DHQ) in other service areas within 12 months of the date of award of
Licences. Audit found that though these 6 new operators obtained the initial 4.4 Mhz
spectrum in 81 service areas during the period April 2008 to January 2009, none of them had
rolled out their services as per the provisions of the UAS Licences in any service area till 31
December 2009. Since there were many existing telecom UAS Licensees in dire need of this
scarce natural resource, it resulted effectively into hoarding of the finite natural resources of
the Nation by these operators. Thus DOT did not earn any revenue from this natural
resource during 2008-09 and 2009-10 due to inordinate delay in the commencement of
services by these operators. Further, DoT also failed to recover Liquated Damages and
penalty of ` 679 crore from these 6 operators for inordinate delay in the rolling out their
services till 31 December 2009.

Chapter 5
Financial Impact 5
5.1 The entry fee fixed for a pan India UAS Licence was fixed at ` 1658 crore and as explained in
Chapter 3 this price was the same as that captured from the market for a Cellular Mobile
Service licence in 2001. The decision of the DoT to adopt this price for UAS licences also was
taken in 2003 with a view not to delay the implementation of UASL. The bidding pattern of
2001 would clearly indicate that the 2001 price was discovered in a nascent market and
considering the revolutionary changes in the Indian telecom market since then, there is no
doubt in concluding that the that the same 2001 price did not reflect the true economic
value of a licence and the spectrum bundled with it in 2008. There are two main issues for
consideration:
5.1.1 Whether the entry fee was expected to reflect the value of the spectrum at all?
The 2003 Cabinet decision intended to make the UAS licence only an instrument to
enter the business of providing cellular and other telecom services irrespective of
the technology used for the purpose. Different spectrum bands support different
technology and are used for providing different types of services and thus 2003 UAS
policy, in the second phase of UAS licences, was directed at dissociating Licence from
the type of service that the service provider intends to provide. Once having
obtained a licence or authorisation to provide telecom services, he could obtain
spectrum of required type by paying its price through auction or any other
arrangement decided by an independent regulator to be set up for spectrum pricing
and management. Since the policy was not reviewed for next 4 years, the issue of de-
linking the entry fee from the price for the use of spectrum remained unaddressed.
TRAI in August 2007, while recommending that 2G spectrum should not be
auctioned opined that “in today's dynamism and unprecedented growth of telecom
sector, the entry fee determined in 2001 is also not the realistic price for obtaining a
licence. Perhaps it needs to be reassessed through a market mechanism”. Since no
price discovery of spectrum was attempted for 2G spectrum separately, the entry
fee discovered in 2001 is mainly the price of spectrum that came with UAS licence
5.1.2 What could be the value of the spectrum which was allocated to 122 licensees in
2008 at the price discovered through bidding for licences way back in 2001?
Any loss ascertained while attempting to value the spectrum in hindsight can only be
'presumptive', given the fact that there are varied determinants like its scarcity
value, the nature of competition, business plans envisaged, time of entry,
purchasing power of the people, growth of economy etc., which, in a market
condition, would throw up the actual price at a given time. It was seen that while

fixing the Reserve Price for 3G and BWA spectrum subsequently, the DoT had
correctly observed that “the key determinants of spectrum value in a competitive
auction (where demand is more than supply) are the level of competition in the
auction and the attractiveness of the business plan for using the spectrum.” Instead
of attempting to come to a specific value of 2G spectrum which could have been
possible only through an efficient market drawn process for price discovery
involving demand and supply position and attractiveness of business plan for using
2G spectrum in future, we have looked at the various indicators to assess a possible
(presumptive) value, from the various records available to Audit rather than going
for any mathematical/econometric models.
5.2 Underpricing of 2G and Consequent Loss
5.2.1 UASL applicant had offered higher price
On 5 November 2007 S TEL Limited, who had applied for UAS licence in September
2007, in its communication addressed to the Hon'ble Prime Minister voluntarily
offered to pay additional revenue share of ` 6,000 crore to the DoT for a Pan-India
licence over and above the spectrum charge/ revenue share payable as per existing
policy. S TEL Limited in a further communication addressed to Hon'ble MoC&IT
dated 27 December 2007 enhanced its earlier offer of ` 6000 crore to ` 13,752
crore over a period of ten years for allotment of 6.2 MHz GSM spectrum. The
Company further agreed to increase the bid price in the event of any counter bid or
auction of spectrum for GSM on a Pan-India basis.
5.2.2 If the price offered by S Tel Ltd which he proposed to revise upwards in case of any
counter bids, is used as indicator of market valuation of 6.2 MHz of 2G spectrum at
that time, value in respect of all 122 new licences and 35 licences under dual
technology after discounting the receivables of the future years work out to ` 65,909
crore as against ` 12,386 crore collected by the DoT as in the table given below.
(` in crore)
Category of No of Offer price Discounted Value as per Amount Potential

Licenses license of S Tel for Price of S discounted actually loss to
a Pan India Tel for a price of received exchequer
License Pan India S Tel
License
New UAS Licenses 122 13752 8825 47964 9014 38950

Dual Technology 35 13752 8825 17945 3372 14573
Total 65909 12386 53523
This indicated that had an open process of bidding/auction been used for price discovery
and hasty and abrupt changes in deadlines and dates not been made, it could have been
possible for the Government to have received at least this amount.

5.2.3 The DoT replied (July 2010) and again reiterated in the meeting on 4 October 2010
that S Tel had attached conditions to their offer which were not acceptable to the
Government. Moreover, the Company withdrew their offer in the Hon'ble Supreme
Court and hence there was no loss to the Government. The contention of the DoT is
not correct as the S Tel had withdrawn the offer in March 2010 i.e. after more than
two years, when the ground realities in the telecom sector had changed viz the
competitors had already got the UAS licences along with spectrum, established their
infrastructure and started rolling out their services, stiffer competition due to 13/14
operators in certain areas etc.
5.2.4 Further, the offer made by S Tel is included in this report only as an indicator of the
market perception of the value of the 2G spectrum which could have accrued to the
Government if the DoT had resorted to a bidding/auction process for allocation of
2G spectrum in 2008.
5.3 Value based on prices discovered for 3G spectrum
Auction of 3G spectrum was recommended by TRAI in its Report submitted to Government

in September 2006 in which they had recommended a Reserve Price for one block of 2x5
MHz 3G spectrum pan India at ` 1010 crore which was subsequently enhanced to ` 3500
crore by the EGoM constituted to consider the issues relating to auction of 3G spectrum.
TRAI in its report of 2010 has observed that 2G services today are actually offering 2.75G
services. Therefore “while comparing spectral efficiency and other factors, it is fair to
compare existing 2.75G systems with 3G systems”. The Authority recommended 3G prices
to be adopted as the current price of spectrum in the 1800 Mhz band and intends to
separately study the subject for apprising the Government of its findings. They have
recommended even higher pricing at 1.5 times of 1800 MhZ band for the 2G spectrum in 800
and 900 Mhz band.
Besides, comparing the 2G and 3G on their varieties of features and the type of services they
could support, scarcity factor and demand and supply position also play important role in
determining market price. It was amply demonstrated between September 2007 and
December 2008 that its 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 can 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
` 1, 11,512 crore against ` 9014 crore realised by DoT. Similarly, for spectrum allotted under
the dual technology as referred in Paragraph 4.8, the value would have been ` 40526 crore,
as against ` 3,372 crore collected. The total difference in value worked out to ` 1,39,652
crore as in the table given below.

(` in crore)
Category of No of 3G rate for Value as Amount Potential

Licenses license Pan India per 3G rate actually loss to
Licence received exchequer
New UAS Licenses 122 16750 111512 9014 102498

Dual Technology 35 16750 40526 3372 37154
Total 152038 12386 139652
The DoT stated that it was incorrect to calculate the notional loss to the Government for
allotment of initial spectrum to new operators for 2G services at 3G price which itself has
been recommended by the TRAI beyond 6.2 MHz and which were presently under
reconsideration of TRAI.
Audit reiterates that specific value of 2G spectrum could have been discovered only through
an efficient market drawn process and in its absence, these are the indicators available
which give the hints towards the loss Government could have suffered. The revenue realised
through auction of 3G at the rate fetched through a market process is highlighted in this
report to project the benefits of resorting to an open price discovery process and the value
that spectrum could command without compromising with the policy of open competition.
The fact also remains that the Government got ` 1.03 lakh crore from the auction of 3G and
BWA spectrum against their own estimate of ` 35,000 crore.
5.4 Sale of equity by UAS licensee firms at higher value
As per the DoT guidelines on UASL, the total composite foreign direct investment i.e., FDI by
an applicant company should not exceed 74 per cent. The 74 per cent foreign investment
can be made directly or indirectly in the operating company or through a holding company
and the remaining 26 per cent will be owned by resident Indian citizens or an Indian
Company.
5.4.1 There were several UAS licensees including the new entrants, which have been able
to attract significant foreign investments in the recent past. The 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 on the next page:

Name of the Operator Percentage of Value of equity Name of the Company
equity transferred
transferred ` in crore Seller Buyer
1. Swan Telecom 5.27% 380.50 Genex Exim Etisalat

(Now Etisalat DB Telecom) (prposed) Mauritius
2. Swan Telecom 44.73% 3217 Swan Telecom Etisalat Internatinal
(Now Etisalat DB Telecom) India Ltd.
3. S Tel 5.61% 238.5 crore Sky city BMIC, Mauritius
(proposed) Foundations (India) (Foreign)
Telecom Investment
(Foreign)
4. Unitech 67.25% 6120 Unitech Limited Telenor Asia

crore (Indian) (Foreign)
5. Tata Teleservices 27.31% 12924 TTSL (Indian) NTT Docomo
crore (Foreign)
6. Tata teleservices 20.25% 949 crore TTML (Indian) NTT Docomo

(Maharashtra) (TTML) (Foreign)
7. Sistema Shyam 63.71% 210.33 crore Shyam Telelinks Sistema Joint

Teleservices Ltd. (SSTL) (Indian) Stock (Foreign)
Fresh Issue US$ 678 SSTL (JV with ROSIMUSHCHE
million 74% FDI) STVO (Foreign)
(3051 crore)
Out of the above six, three companies viz. Swan Telecom, S Tel and Unitech were new
entrants in the telecom sector. The fact that these operators could draw huge foreign
investments, even before establishing a foothold in the Indian telecom market would
suggest that acquiring UASL and with it, allotment of 4.4 MHz of GSM spectrum for roll out,
was the main factor which attracted the foreign investment.
5.4.2 The Unitech Wireless Services, claimed in their letter to the DoT on 4 November
2008 that Telenor was partnering with them at a stage when about 6 months of
effort and ` 2100 crore of 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 by the DoT. The value which should have accrued to the public
exchequer went as a favour to the new licencees in the form of huge capital infusion
for enriching their business.

5.4.3 Based on the above premise, a comparison of foreign equity attracted by the new
entrants in the Indian telecom market would reveal that the cost of a pan India
licence could be a value between ` 7758 crore to ` 9100 crore. However, the DoT
issued pan India licences at ` 1658 crore. As a result 122 licenses and 35 dual
technology approvals issued in 2008 could have earned the revenue ranging from
` 58,000 crore to ` 68,000 crore to the Government against the actual revenues of
` 12,386 crore earned by them.
Name of Value of Value of No. of Entry Value Potential revenue Potential

the Company equity cent service fee for 22 loss to
sold percent areas paid service 122 35 dual Total Amount exchequer
equity covered area licence tech actually
received
Unitech to 6120 9100 22 1658 9100 49456 18504 67960 12386 55574
(Now Brand (67.25%)
Name Unior)
Swan Telecom 380.50 7220 13 1537 7788

Ltd. (Now (5.27%)
Etisalat DB
Telecom)
42244 15805 58049 12386 45663
Swan Telecom 3217 7192 13 1537 7758
Ltd. (Now (44.73%)
Etisalat DB
Telecom)
5.4.4 The DoT responded to the audit attempts to project a probable value for spectrum
by stating that the calculation by Audit was a hypothetical arithmetic exercise and
not correct. The attempt by Audit is only to highlight that the price discovery of
spectrum through a market mechanism would have fetched a much higher value
and thus increased receipts for Government. Non discovery of Price of spectrum
through competitive bids/auction in 2007-08 has resulted in huge undue advantage
to some of the newly incorporated firms with little or no experience in the Telecom
Sector. This is particularly so when the Government of India had followed the market
mechanism to determine value of cellular mobile licenses since early 1990s.
5.5 Indicators of the value of 2G spectrum

Based on the values determined through various indicators, the loss to the Government on
account of grant of new UAS licenses and 2G spectrum during the period 2007-2010 would
appear to be in the following range:
Category Criteria for working out potential loss to exchequer (value ` in crores)
S Tel rate Rates on the basis Sale of equity by the new licensees
of 3G auction
Unitech Swan
New Licences 38950 102498 40442 33230

Dual Technology 14573 37154 15132 12433
Beyond contracted quantity 13841 36993 14052 12003
of 6.2 MHz
Total 67364 176645 69626 57666
In an open transparent system, there is a possibility that Government would have earned
even more revenue than that these new entrants have been able to attract.

Chapter 6
Conclusion 6
6.1 Drawing upon NTP 99, a policy framework was established in November 2003 to chart the
course for implementation of a Universal Licensing Regime. The Department of
Telecommunications of the Ministry of Communications and Information Technology did
not make mid course review/modifications, based on the collective wisdom of Government.
The recommendations of Telecom Regulatory Authority of India were not followed in spirit,
resulting in a transitory phase of the licensing regime continuing for years together without
true value of 2G spectrum being realised, while 3G spectrum, a similar resource, was
allocated at market price discovered through auction, generating revenues of ` 67,718.95
crore. While targeted growth in tele-density had already been achieved, and a reduction in
tariff in the telecom sector had benefitted the customer, as envisaged in NTP-99, a policy to
ensure optimal utilisation of spectrum and a method to discover its market price was not
considered. 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 the Department of Telecommunications to address the
issue of pricing of 2G spectrum, it was only natural that 2G spectrum was not allocated at its
correct market value.
6.2 The entire process of allocation of UAS licences lacked transparency and was undertaken in
an arbitrary, unfair and inequitable manner. The Hon'ble Prime Minister had stressed on the
need for a fair and transparent allocation of spectrum, and the Ministry of Finance had
sought for the decision regarding spectrum pricing to be considered by an EGoM. Brushing
aside their concerns and advices, the Department of Telecommunications, in 2008,
proceeded to issue 122 new licences for 2G spectrum at 2001 prices, by flouting every
cannon of financial propriety, rules and procedures. The DoT did not follow its own
guidelines on eligibility conditions, arbitrarily changed the cut off date for receipt of
applications post facto and altered the conditions of the FCFS procedure at crucial junctures
without valid and cogent reasons, which gave unfair advantage to certain companies over
others.
6.3 The Department of Telecommunications also did not do the requisite due diligence in the
examination of the applications submitted for the UAS licenses, leading to the grant of 85
out of 122 UAS licences to ineligible applicants. These companies, created barely months
ago, deliberately suppressed facts, disclosed incomplete information, submitted fictitious
documents and used fraudulent means for getting UAS licences and thereby access to

spectrum. Owners of these licences, obtained at unbelievably low price, have in turn sold
significant stakes in their companies to the Indian/foreign companies at high premium
within a short period of time. The premium earned by these new entrants to the telecom
sector was nothing but the true value of the spectrum, which should have normally accrued
to the public exchequer, had the transparent and fair market mechanism been followed for
the allocation of UAS licences.
6.4 Dual Technology was also introduced by the DoT in October 2007 in a hasty and arbitrary
manner and in-principle approval was given to 3 operators on a day prior to the
announcement of the policy, which gave the perception of discrimination against other
players in the field. Further this decision was in contravention of the Cabinet decision of
2003, resulting in additional spectrum being allotted to certain operators at 2001 price.
6.5 The correct value of 2G spectrum allotted to 122 licences in 2008 and the 35 licences under
dual technology, also in 2008, could have been determined only by a market driven process,
if adopted. However, its presumptive value, based on various available indicators has been
indicated in the Chapter 5. In addition, the value of additional spectrum allotted beyond the
contractual amount to existing nine operators, based on various indicators has been shown
in the Chapter 4 and 5.
6.6 In conclusion, it is observed that despite having themselves sought the opinion of the
Ministry of Law and Justice, the Department of Telecommunications decided to ignore the
advice received. The concerns of the Ministry of Finance were also not addressed for
reasons which are not convincing. In fact, the directions of the Hon’ble Prime Minister
evoked a response from the Hon’ble Minister of Communications and Information
Technology on the same day. The letter contained assurances with regard to the availability
of spectrum for all applicants as also with regard to the strict adherence to the FCFS policy
for allocation of spectrum. The assurances, however, were not adhered to. The
methodology for allocation of 2G spectrum, a scarce finite national asset and for which
there was an unprecedented demand for allocation, was not deliberated upon by the full
Telecom Commission. Audit is of the view that such discussion with different stake holders
represented in the Telecom Commission would certainly have benefitted Department of
Telecommunications in arriving at a more credible and transparent procedure for allocation
as also for ascertaining the true value of 2G spectrum. The entire implementation process
does not withstand the test of scrutiny, and hence, the widely held belief that it has
benefitted a few operators and has not been able to maximise generation of revenue from
allocation of such a scarce resource. This has now been confirmed in Audit. The role of
Telecom Regulatory Authority of India would also appear to have been reduced to that of a
hapless spectator as its recommendations were either ignored or applied selectively. The
entire process of allocation of 2G spectrum raises serious concern about the systems of
governance in the Department of Telecommunications which need to be thoroughly

reviewed and revamped. The fact that there has been loss to the national exchequer in the
allocation of 2G spectrum cannot be denied. However, the amount of loss could be debated. To
ensure that such lapses do not occur in any Ministry or Department of the Government, there is an
imperative need to fix responsibility and enforce accountability for the lapses highlighted in the
Audit Report.
New Delhi (R. P. SINGH)

Date: 8 November, 2010 Director General of Audit
Post and Telecommunications
Countersigned
New Delhi (VINOD RAI)

Date: 8 November, 2010 Comptroller and Auditor General of India

Annexure-I

Annexure-II

Annexure-III

Annexure-IV

Annexure-V

Annexure-VI

Annexure-VII

Thank you for evaluating AnyBizSoft PDF
Merger! To remove this page, please
register your program!
Go to Purchase Now>>
AnyBizSoft
PDF Merger
 Merge multiple PDF files into one
 Select page range of PDF to merge
 Select specific page(s) to merge
 Extract page(s) from different PDF
files and merge into one

CAG Report On 2G

Uploaded by

Copyright:

Available Formats

CAG Report On 2G

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CAG Report On 2G

Uploaded by

Copyright:

Available Formats

Preface

This Report for the year ended March 2010 has

The Report contains the results of examination by

Performance Audit Report on the

II. Why did we decide to do an audit on the Issue of Licence and

Performance Audit Report on the

IV. Major Findings

Performance Audit Report on the

(ii) Telecom Commission was not consulted

(iii) Views and concerns of Ministry of Finance overruled

Performance Audit Report on the

(v) Hon'ble Prime Minister's suggestions were not followed

(vi) Arbitrary changes by DoT in the cut-off date.

Performance Audit Report on the

(vii) FCFS Policy was not followed

(viii) Issue of license to ineligible applicants

Performance Audit Report on the

2. Auction of 3G spectrum was recommended by TRAI in its Report submitted to

(x) Value of additional spectrum allotted to 13 existing operators beyond

New Licences 38950 102498 40442 33230

Performance Audit Report on the

Chart - 1.1 Growth of Telecom Network (Wireline and Wireless)

2003 2004 2005 2006 2007 2008 2009 2010

Performance Audit Report on the

Chart - 1.2 Revenue on account of Spectrum charges and Licence Fee

14000 Spectrum Charges

Performance Audit Report on the

Performance Audit Report on the

Policy Stage Methodology for Entry of Operators Fixed Fee Regime

Performance Audit Report on the

1.5 Organisational Arrangement

Performance Audit Report on the

Minister of State for Communications & IT

Secretary, DoT & Chairman, Telecom Commission

Full time Members Part Time Members

Member Member Member Member Secretary Secretary Secretary Secretary

Advisor Advisor DDG (AS)

1.6 Issue of Licences

Operators intending to provide telecommunication services have to obtain a licence from

1.7 Spectrum Allocation

Radio Frequency Spectrum is the entire range of wavelengths of electromagnetic

Radio frequency spectrum, i.e., the entire range of wavelengths of electromagnetic

n radio frequency spectrum does not respect international geographical

Performance Audit Report on the

Assignment of radio frequencies is governed by international treaties formulated under the

Spectrum for mobile services as per NFAP 2002

824 844 869 889

890 915 935 960

1710 1785 1805 1880

1920 1980 2110 2170

Performance Audit Report on the

Allocation of contractual and additional spectrum

Detail of licences Allocation of contractual spectrum Allocation of additional spectrum

Performance Audit Report on the

2.2 Audit Objectives

Audit was taken up with the objectives of ascertaining as to;

Performance Audit Report on the

Performance Audit Report on the

Performance Audit Report on the