The actual demand for cellular phones was much more than what was projected in all the four circles. However, DOT failed to protect the government interest in incorporating suitable provisions in the licence agreement for charging higher licence fee in case the demand was high, the CAG said.

This, the report said, unduely benefitted operators in four metros by more than Rs 354 crore with consequential loss to DOT. Undue benefit of Rs 483 crore was also given to the operators by not revising the licence fee due to reversion of air time charges to Rs 1.40 per 10 seconds from Rs 1.10.

The selectioncommittee constituted to finalise the terms of bidding ignored the objective of maximising the licence fee, the CAG said. The department has arbitrarily assumed on the estimated demand for mobile telephones for each operator in the four metros on the advice of one of the bidders.

DOT did not enhance the licence fee commensurate with increase of the air time charges, which had taken place after the bids were submitted and permitted the operators to charge airtime charges of Rs 1.40 per 10 seconds which was 27 per cent higher than the rate prescribed in the tender.

DOT had made an assumption that every subscriber would be making calls of approximately eight minutes duration per day.

Even at this assumed rate of average call time per day, the undue benefit given to the operators in metros for the first three years of the licence agreement due to higher air time charges would be Rs 483 crore.

The licence agreements provided multiple safeguards for realisation of the licence fee, total outstanding licencefee stood at Rs 685.27 crore, and an interest of Rs 50.76 crore on defaulted payment. DoT had neither obtained post dated cheques in terms of agreement.