•Why is it being alleged that communications minister A Raja granted licence and spectrum to a host of new players at throwaway prices, causing loss to the state exchequer?

It all began around middle of last year when the Department of Telecommunications (DoT) sough the Telecom Regulatory Authority of India’s (Trai’s) recommendation on whether the existing policy of having unlimited telecom players in a circle should be continued. DoT had also sought to know Trai's mind on a host of other issues like mergers and acquisitions, use of dual technology and roll-out obligations. While submitting its recommendations in August 2007, Trai said that the government should continue with the policy of no-capping with regard to entry of new players. It also said that 2G spectrum in 800, 900 and 1800 Mhz should not be auctioned while spectrum in all the other bands should be auctioned. As soon the recommendations were made public, a host of firms, mostly with no prior experience in telecom and some shell companies, submitted applications for telecom licences. Though the government accepted the Trai’s recommendation of no-capping, seeing the deluge of applications it put a temporary bar by not accepting applications after October 1, 2007. Then, the DoT issued licences to only those firms, which had applied till September 25, 2007 and companies such as Swan, Unitech, Datacom, Loop Telecom, S Tel benefited from this. These companies have been granted/being granted spectrum on a circle basis.

•Was there anything wrong in this entire exercise?

The DoT granted these licences on a first-cum-first-served basis. As per the policy, alongwith a licence, the cost of an all-India licence is Rs 1,651 crore, while bundled spectrum of 4.4 Mhz is also given. The majority opinion was that since spectrum is a scarce resource, the government should not allot it bundled with licence but rather auction it to realize the market value. Recently, two companies, Swan and Unitech sold 45 per cent and 60 per cent stakes respectively to foreign players at valuations of around $2 billion. Since these two companies do not have network, subscribers or knowledge of telecom business, it is inferred that the huge valuation is the price of a paper called licence and spectrum, which are radio waves required to operate mobile services. Critics maintain that this money could have come to the government, which it let forgo by doling out licence and spectrum at a price discovered in 2001.

•What does Raja have to say?

Raja maintains that he has not done anything wrong. He went by the Trai recommendation of no-capping and not auctioning 2G spectrum. With regard to awarding licence at a price discovered in 2001, he says that the Trai did not ask for revising it, and the Cabinet had approved the price in 2003 so he was perfectly right in sticking to it. Regarding the stake sales by the two companies, Raja says that the deal is as per the corporate laws of the country and the new operators require funds to roll out network and services. As an afterthought he has proposed to bar promoters of new licensee firms from selling their equity till a period of three years.

•Is Raja right in his defence?

Yes and No. Yes, when he says that he went by Trai’s recommendation on no-capping and not auctioning of 2G spectrum. No, because he later inflicted a temporary capping policy, which is still in force. Raja is wrong when he says that he went with Trai regarding the price of awarding new licences. Trai in 2003 had categorically said that all new licences should be awarded through a multi-stage bidding. Even the August 2007 recommendation said that a realistic price should be determined through a market mechanism.

•What’s the difference between auctioning telecom licence and spectrum?

Historically, since the telecom sector was opened to the private operators in India, licences have been auctioned but spectrum has been bundled with it. However, companies pay a spectrum usage charge. If Raja would have auctioned the licence in the present case and given spectrum bundled with it, he would have been able to realize a market-determined price rather than a price discovered through auction in 2001. And the Trai recommendations did not stand in his way as far as auctioning of licence is concerned.

•Is there any other way these companies allegedly benefited through DoT?

Yes. A crucial recommendation of Trai with regard to mergers and acquisitions for new licensees was tweaked by the DoT, which led these companies to sell stakes. Trai had suggested that companies should not be eligible for mergers and acquisitions till they achieve their rollout obligations. Companies have to roll out networks covering 10 per cent of the circle by year one and 50 per cent by year three. However, DoT changed it and while it barred the companies for a total mergers and acquisitions till the end of year three, it allowed them to sell stakes up to 74 per cent before that. This helped Swan and Unitech to sell stakes even before they set up a single tower.