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CAG: Multiple violations of policy in handing out in DOT
October, 18th 2010

The public audit body Comptroller and Auditor General of India (CAG) has indicted the department of telecommunications (DoT), headed by communications minister A. Raja, for multiple violations of policy in handing out second generation (2G) mobile phone licences in January 2008, according to fresh details that have emerged of its findings.

The indictments are contained in two reports, yet to be made public and reviewed by Mint, prepared for the Central Bureau of Investigation (CBI). One report documents all the violations by DoT during April 2007 to March 2008, and another relates only to the allocation of 2G spectrum that resulted in an estimated loss of Rs.1.4 trillion to the exchequer.

The findings, based on detailed circumstantial evidence, could be politically embarrassing for the Congress-led United Progressive Alliance (UPA); the Opposition has already demanded the resignation of the telecom minister, who belongs to Tamil Nadus ruling Dravida Munnetra Kazhagam (DMK), for alleged misuse of office in the allocation of spectrum.

The two reports are scheduled to be tabled in the winter session of Parliament, due to begin in the first week of November.

The government should take immediate action based on these reports, said S. Ramachandran Pillai, a politburo member of the Communist Party of India (Marxist). Earlier, the government delayed taking action because they were afraid of the DMK. However, now, in the light of these findings, immediate action is needed.

CBI, in October last year, raided the office of DoT and seized a large number of documents and other evidence relating to the allocation of 2G spectrum. After the Supreme Court asked for a status report, the countrys premier investigating agency replied that the probe was still under way, so it would not be able to make the details public.

There was no response to an email and a faxed questionnaire sent and telephone calls made by Mint to Rajas office.

CAG has objected to the so-called first-come-first-served policy, as opposed to an auction, adopted by DoT for handing 2G licences to five firms Unitech Wireless Ltd (rebranded as Uninor), Loop Telecom Pvt. Ltd, S Tel Pvt. Ltd, Datacom Services Ltd (now known as Videocon Mobile) and DB Group-promoted Swan Telecom (now known as Etisalat DB Telecom Pvt. Ltd)in January 2008.

CAG has alleged that the policy was not transparent and that DoT had tipped off the firms in advance, as a result of which they had been able to arrange demand drafts worth Rs.1,650 crore in 45 just minutes to obtain pan-India licences. Without the advance notice, it would not have been possible for the five firms to be among the first to file their applications, CAG said.

According to a banker, who asked to remain unnamed because of the sensitivity of the issue, it typically takes around a days time to arrange a demand draft of that magnitude, including the required bank guarantees.

CAG said the licences were allotted in January 2008 at 2001 prices, which it said was unjustified, given that there were only four million mobile phone subscribers in 2001, a number that had risen to 300 million by 2008. This, according to CAG, had caused an estimated loss of Rs.1.40 trillion to the exchequer.

CAG has also taken objection to DoTs decision to first arbitrarily advance the cut-off date for applications by a week from 1 October 2007 to 25 September 2007 and then to make it public only on the last date of issuing of letters of intent10 January 2008.

By doing so, DoT restricted the number of applicants to 122. Going by the earlier deadline, the number would have been 465.

Late last year, the Delhi high court declared DoTs move to advance the cut-off date as illegal.

In a further indictment, CAG has questioned the propriety of the manner and sequencing in which DoT issued public information relating to the sale of 2G licences.

While normally this information is routed through the Press Information Bureau, the official publicity arm of the government, in this instance DoT decided to put out the information on its website instead.

The press release was uploaded on DoTs website by 2.45pm on 10 January 2008, asking applicants to submit their demand drafts within an hour beginning at 3.30pm the same day.

And, CAG noted, official records detailed no reason to justify the action.

The public audit body has also flagged the fact that these decisions had not been vetted or approved either by the Telecom Commission or the Cabinet Committee on Economic Affairs (CCEA), which normally oversees any major policy change. The Telecom Commission is an inter-ministerial body consisting of secretaries from all the major ministries that decides on all telecom policy matters.

CAG said DoTs decisions were even more questionable given that the cabinet had in October 2003 laid down that telecom licences should be allotted through public auction. In its findings, CAG has noted that all the decisions had been taken by Raja; the orders carried his signature.

In another indictment, CAG has observed that the first five companies that submitted the demand drafts and were eventually selected did not meet the eligibility criteria. It has sought DoTs response on why these licences should not be revoked.

According to CAG, the memorandum of association and articles of association of the five firms did not allow them to get into the telecom sector and they did not have the requisite net worth stipulated by DoT.

CAG has also found that Swan telecom (now Etisalat DB) as well as Loop Mobile violated cross-holding restrictions.

According to the CAG report, the Reliance-Anil Dhirubhai Ambani Group, which controls Reliance Communications Ltd, had a more than 10% stake in Swan and the Ruias, the Indian promoters of Vodafone Essar Ltd, owned more than 10% of Loop Telecom.

S Tel, Etisalat DB and Datacom Solutions did not respond to emails sent on Tuesday. Unitech Ltd, the Indian partner in Uninor, said Unitech Wireless companies had been licensed after complying with the formalities prescribed by applicable DoT guidelines.

Loop Mobile said it had been fully compliant with all the terms and conditions of the UAS (unified access service) licence.

DoT, on its part, has secured legal opinion that says CAG has no jurisdiction on policy as well as matters that come under the purview of the Central Vigilance Commission (CVC).

DoT has also asked CAG for documentary evidence of the violations.

Raja has been saying that he only followed existing policy and the recommendations of the Telecom Regulatory Authority of India. CAG disagrees, noting that in 2001, the licences and spectrum had been auctioned.


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