Sitaram Yechury, Polit Bureau member of CPI(M) and Member of Parliament, Rajya Sabha has written to the Prime Minister Dr. Manmohan Singh asking the government to take urgent measures to recover the huge loss suffered by the country’s exchequer due to the manner in which 2G spectrum was sold. He further asked for action against the malafide intensions of the Minister and the Ministry. The following is the full text of the letter.

Dear Shri Manmohan Singhji,

In your recent interaction with the media, you have discussed the 2G spectrum case and the charges against Shri Raja, the Minister for IT&T. In this context, I would like to draw your attention to my earlier letters dated February 29, 2008 and November 18, 2008 on the spectrum issue, where I had identified the following three beneficiaries of undervaluing the 2G spectrum:

1.The GSM operators sitting on extra spectrum in excess of 6.2 MHz

2.CDMA operators being allowed GSM license and 2G spectrum at 2001 prices

3.New operators being allowed license on a first come first served basis, again at 2001 prices

As I will show, the acts of the Minister in the spectrum allocation have resulted in a huge loss to the exchequer. I will also bring out the legal and procedural violations that Shri Raja has committed, all with the intent to favour certain parties in the above process.

Loss to the Exchequer and its Recovery

The recent 3G auction has established the market price of spectrum, which is a scarce national resource. From this price, it is clear that all three elements identified above have resulted in huge losses for the exchequer. If we use the recent 3G auction price to benchmark the spectrum price for 2G as TRAI has recently suggested, the loss is of the order of a whopping Rs. 190,000 crore.

  • Loss due to 122 licenses for new entrants in 2008: Rs. 124,000 crore
  • Loss due to cross-over licenses permitted to CDMA operators (Dual Technology License): Rs. 36,000 crore
  • Loss due to excess spectrum occupied by the GSM operators beyond 6.2 MHz: Rs. 30000 crore
  • Total Loss: Rs.190,000 crore

The TRAI has opined recently that GSM operators who hold spectrum in excess of the original spectrum bundled with the license should be made to pay market based prices retrospectively as benchmarked by the 3G auction prices. This is a welcome step and should indeed serve as the basis for recovering the loss to the exchequer. The same principle should be extended for the new entrants as well as the CDMA operators for the crossover license. They should also be made to pay the market value of the spectrum as benchmarked by the 3G auction.

The argument given by the Minister that 2G license/spectrum was given cheap – Rs. 1650 crore for an all India license covering 22 circles – in order to keep the prices to the consumer low does not hold water. The Ministry illegally modified the M&A guidelines and rollout obligations allowing for sale of equity. This sale of equity in effect is equivalent to a private re-sale of the license. This means that though the national exchequer did not receive the market price of 2G spectrum, the companies benefiting from the Minister’s largesse, conducted a sale of spectrum at current market price, converting what should have been an open, transparent public auction (of the kind recently concluded on 3G spectrum) into a private auction. This explains why Swan and Unitech were able to get 5-6 times the value of the spectrum from only a part of their equity sale.

Therefore, the Government should have no hesitation in recovering the market value of spectrum – an additional Rs. 160,000 crore – from the licensees retrospectively. In case they refuse, their licenses should be cancelled. Far from having any impact on consumer tariffs, it will enable the Government to mobilise resources and spend on social welfare, which will benefit the people.

Misconduct of the Telecom Minister

Violation of TRAI Act: In your media interaction on May 24, 2010, you have stated that you been informed by the Minister that he followed the existing policy and TRAI recommendations. This is complete disinformation. The Minister chose to implement only certain elements of the recommendations while flouting three key recommendations of the TRAI – relating to entry limit on service providers, M&A rules and roll-out obligations. This, in spite of the fact that TRAI itself has observed in multiple letters to the DoT, that the Government should not cherry-pick from its recommendations – the recommendations should be seen as a whole.

I would like to emphasis that in case of deviations from the recommendations, as per Clause 11 (1) (a) of the TRAI Act (as amended in 2000), consulting the TRAI was mandatory. The Government has the right to modify TRAI’s recommendations, but only after going back to TRAI, a step which the Minister did not follow. Therefore the changes in the recommendations unilaterally done by the Minister were not just arbitrary acts but a violation of statutory provisions and therefore illegal.

The violations regarding Mergers and Acquisitions (M&A) and rollout obligations were made specifically to allow Swan and Unitech to sell their equity. If we take the TRAI recommendations on M&As together with the roll-out obligations as per original terms of the license, Swan and Unitech would not have been able to sell their equity a scant few months after receiving their licenses.

Misuse of 2003 Policy and TRAI recommendations of August 2007 for a bogus first-come-first-served policy: The sequence of events now makes clear that the spectrum issue was not just a case of Governmental incompetence which resulted in this huge loss to the country. It was a series of deliberate acts committed by the Minister to benefit certain favoured parties. The Telecom Minister was given explicit recommendation by TRAI in August 2007 (Section 2.73) that the entry fee existing then based on 2001 prices was not realistic and there was a need to “reassess entry fee through market mechanism.” Further, the PMO (your letter), Finance Ministry, Law Ministry, and internal memos of senior officials of DoT had made it clear that instead of the dubious route of “first come first served” distribution of 2G spectrum / licenses at 2001 prices, other routes for price discovery including auction or appropriate benchmarking should be adopted. I cannot accept that the PMO, the Law Ministry, the Finance Ministry and senior officials in the DoT were all ignorant of the existing policy and TRAI provisions while advising the Ministry on entry fee/spectrum charges. Notwithstanding these recommendations, the Minister went ahead with this spurious first come first served principle claiming previous policy of 2003 and TRAI recommendations as the basis of his decision.

It is pertinent to point out that once DoT had made a reference to TRAI (April 2007) and TRAI had given its recommendations (August 2007), TRAI recommendations have statutory status and over-ride any earlier policy. Therefore, the Minister cannot mix and match from earlier policy and the TRAI recommendations as it suits him.

Arbitrary operation of first-come-first-served policy: There is now clear evidence that the first-come-first-served policy for award of licenses was further vitiated by entirely arbitrary operation of even this principle. The Delhi High Court Judgements of July 1 and November 24, 2009 struck down the September 25 cut-off date imposed by the Ministry on license applications as illegal, calling this change of cut-off date as “… a change in the rule after the game has begun”.

Even more glaring was modifying first-come basis from the date of application for license to whoever deposits the money first with just a few hours’ notice. This was done well after the ranking of parties as per original criterion of first-come was known, and was nothing but a blatant attempt to change this ranking in favour of specific parties. This is now no longer a matter of inferences or media reports but stated in an Audit Report – P&T’s Audit Office report dated March 31, 2010. The entire exercise was nothing but playing favourites and awarding licenses to a hand-picked set of parties.

Immediate Steps

The above is by no means an exhaustive list of the mala fide in the 2G license case. I am bringing out only a few instances of gross misconduct and illegal acts by the Minister. It is also clear that using the 3G license prices as benchmark, the loss to the exchequer has been around Rs. 190,000 crore. In such a situation, the Cabinet as a whole has to take responsibility of this sordid episode and take immediate action, both to repair this damage to the exchequer as well as redeeming its credibility. I would urge you to take the following steps immediately:

1.Take immediate steps to recover lost license and spectrum fees of about Rs. 190,000 crore by using 3G license figures as the benchmark.

2.Immediately drop Shri Raja from the Cabinet while the probe is in progress to prevent undue influence being used to thwart the probe.

3.Suspend the officials against whom now prima facie case exists for illegalities.