2g Spectrum

Here is a background on the 2G spectrum controversy that resulted in Communications and IT Minister A. Raja of DMK resigning on Sunday:

The issue dates to 2008 when nine telecom companies were issued scarce airwaves and licenses for second generation (2G) mobile phone services at Rs1,658 crore (less that $350 million) for a pan-India operation. As many as 122 circle-wise licenses were issued.

The opposition said that by giving the airwaves cheap, that too in the controversial manner of first-cum-first-served basis, the exchequer had lost billions of dollars. The cut-off date for applications was also arbitrarily advanced.

Later, based on the auction of airwaves for third generation (3G) services, which got nearly $15 billion to the exchequer, and that for broadband access, which fetched over $8.5 billion, the notional loss was estimated at $38 billion to the exchequer.

But Prime Minister Manmohan Singh himself defended Raja's decision and said on May 24 that all that his communications minister had done was to implement a policy already in place and none of the norms were flouted.

The opposition further stepped up its attack with two examples on 2G auction:

- A new player, Swan Telecom, bought licenses for 13 circles with the necessary spectrum for $340 million but managed to sell a 45-per cent stake in the company to UAE's Etisalat for $900 million. This swelled its valuation to $2 billion without a single subscriber.

- Another new player, Unitech, paid $365 million as license fee but sold a 60- per cent stake to Norway's Talenor for $1.36 billion, taking its valuation to nearly $2 billion, again without a single subscriber.

Similarly, another licensor, Datacom, later became Videocon Mobile and Stel now has large stake by Baharian Telecom. The other companies are Tata Tele, Idea Cellular , Loop Telecom, Shyam Telelink and Spice.

As recently as last month, the Supreme Court asked the solicitor general why the prime minister had not responded to the representation by the opposition to sanction proceedings against Raja.

The final blow came after the Comptroller and Auditor General of India said the entire process of spectrum allocation was undertaken in an arbitrary manner and that the advise of the industry watchdog was ignored and misused.