India played favorites in 2G licenses, says auditing agency

The loss to the country could be to the tune of US$40 billion

Irregular allocations of 2G licenses and spectrum in 2008 to some Indian operators may have cost the country about US$39 billion, according to a report by the country's comptroller and auditor general of India (CAG) that was tabled in India's Parliament on Tuesday.

These licenses were issued at 2001 prices even though other government agencies such as the Ministry of Finance had asked the Department of Telecommunications (DOT) to review the decision.

Leaks of the CAG report to local media last week led to the resignation late Sunday of A. Raja, the country's minister of communications and IT, who is alleged to have sold the licenses at basement prices to favored companies and individuals. On Monday the country's president accepted his resignation.

Raja, however, said on Sunday that he had acted in accordance with the law, and would prove his innocence. A case in this connection is also pending before the country's Supreme Court.

Eighty-five out of the 122 licenses issued in 2008 were found to have gone to companies that did not satisfy the basic eligibility conditions set by the DOT and that had suppressed facts, disclosed incomplete information and submitted fictitious documents for getting licenses and thereby access to spectrum, CAG said.

Some of the licensees sold stakes in newly set up service provider companies to multinational companies, including Telenor, which acquired a stake in licensee Unitech Wireless. The valuations of the companies, which had not even started operations, were far higher than what they had paid for license and spectrum, according to CAG.

The CAG has calculated the loss to the government as a result of the alleged scam on the basis of the valuations the licensees were able to attract, and also by the high bids for 3G spectrum in an auction earlier this year.

The country's Central Bureau of Investigation (CBI) said last year that it has registered cases against some officials of the country's DOT, private sector companies and some individuals, in connection with alleged irregularities relating to the award of 2G telecommunications licenses by the DOT. It did not name the persons or the companies that had been charged.

Prime Minister Manmohan Singh recommended an auction, but this was not followed by the DOT on the grounds that some operators had earlier been granted licenses without an auction, CAG said.

After setting Oct. 1, 2007, as the last date for receiving applications, the DOT moved the date to Sept. 25, 2007, thus depriving a number of potential applicants. The DOT said it had decided to put a cap on the number of licenses because of a shortage of spectrum, and to avoid potential legal complications.

The DOT also used the same argument to then issue licenses and spectrum on a "first come, first serve" approach to qualifying applicants.

The DOT, however, deviated from the "first come, first serve" policy both in letter and spirit, according to CAG. Applications submitted between March 2006 and Sept. 25, 2007 were issued letters of intent (LOI) simultaneously on a single day, Jan. 10, 2008. A notice was issued through a press release giving applicants less than an hour to collect the same, and less than half a day to comply with the LOI conditions, CAG said.

The rules were changed to give priority not to those who had applied first under the "first come, first serve" plan, but to those who complied first with the conditions in the LOI.

Some applicants submitted demand drafts and other documents that were dated even before the DOT notice of Jan. 10, indicating that they had advance notice of the requirements, CAG said.

The entire license allotment process in January 2008 lacked transparency and appeared to have been done with the objective of favoring some firms over others, according to CAG.

The CAG said at a Tuesday press conference that the government would decide to take any action against Raja. The opposition has asked for an inquiry by a joint parliamentary committee, and blocked proceedings in Parliament. The government on Monday appointed Kapil Sibal as the minister for communications. Sibal already manages the ministry for human resource development.

John Ribeiro covers outsourcing and general technology breaking news from India for The IDG News Service. Follow John on Twitter at @Johnribeiro. John's e-mail address is

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