January 10, 2008, was not an exceptionally wintry day in New Delhi. As usual, the fog had set in, delaying trains and planes. Much of the southern part of the city was a gigantic construction zone for the 2010 Commonwealth Games. Morning FM radio broadcasts had angry calls from commuters stuck in traffic.
Inside Sanchar Bhawan in central Delhi, housing the head office of the Department of Telecommunications, or DOT, there was chaos of a different kind. A scrappy queue that afternoon on the ground floor of the 13-storey building got so unruly that one person fell down face first ending up with cut lips and a bloody mouth. Mahendra Nahata, Chairman of HFCL, tried to gatecrash the reception area and was escorted out by a security guard.
Those in the raucous queue, most clutching Rs 1,651 crore worth of bank drafts, were putting in applications for new mobile phone service licences with a promise of wireless spectrum that came virtually free. Those ahead in line had a better chance of entering a market of nearly 500 million phone customers. The afternoon was to make the headlines nearly three years later. On November 10, 2010, the Comptroller and Auditor General, or CAG, released a report saying the chaotic events at the DOT office that day caused a "presumptive" Rs 176,000 crore loss to the national exchequer - an amount that would have nearly erased the borrowings of the Central government in 2007-08.
The CAG did not say as much but the message was clear: the manner in which the Telecom Minister Andimuthu Raja and Siddharth Behura, Telecom Secretary and the Chairman of the Telecom Commission, had issued the licences was not above board. Both Raja and Behura are the subject of an investigation by the Central Bureau of Investigation, or CBI, as are other government officials from the time and some of India's top businessmen, including Anil Ambani and Prashant Ruia. Raja is in jail.
Firms that won the licences they staked for in January 2008 were like winners of a lottery. Realty firm Unitech sold a 67.25 per cent stake in its unit Unitech Wireless, a new licensee, to Telenor of Norway for Rs 6,120 crore, valuing its own 32.75 per cent stake at Rs 2,980 crore. DB Realty sold a 40 per cent stake in Swan Telecom to Etisalat of United Arab Emirates for Rs 4,200 crore. And if Raja or DOT say they had no inkling spectrum would be valued so highly they were ignoring a deal from less than a year before. In February 2007, Hutchison Whampoa had sold its two-thirds stake in its Indian venture, Hutch Essar, to Vodafone for $11.1 billion.
Telecom rules in India have been opaque, to be sure. The Indian Telegraph Act, 1885, is among the legislations amended the most - over 400 times. And, DOT has among the worst records within the government on interpretation of rules and instances of favouritism. So, if Sterling Cellular, run by maverick Chennai billionaire C. Sivasankaran, lost out on the right to run mobile phone networks in two of the four metros in licences issued in 1994, it was the urn of the powerful Reliance Industries, India's biggest private company, to muscle into mobile telephony in 2001.
Still, the scale of what is today commonly called the Raja scam is mind-boggling. This is the inside story: Back to January 2008. There is no clarity on how the new licences were issued. At the centre of the controversy was why the rights to use spectrum, the scarce electromagnetic waves used for communication in mobile phones, were not auctioned.
The rules then - based on a seven-year-old precedent - mandated payment of Rs 1,651 crore to the government for a pan-India licence and 4.4 MHz of spectrum. There were voices against this 'regulatory arbitrage'. The Telecom Regulatory Authority of India, the Finance Ministry, the Law Ministry and even Prime Minister Manmohan Singh had advocated the auctioning of spectrum for the new licences. But Raja looked the other way, insisting he was playing by the rule book. The most stark of these brush-offs was made within Sanchar Bhawan.
Telecom Commission's Member, Finance, Manju Madhavan had sent a note on November 30, 2007 on how the price for spectrum was abnormally low. D.S. Mathur, then Telecom Secretary, supported her view. This elicited a sharp response from Raja on December 4. His noting on file, reproduced in a report prepared by Justice Shivraj Patil tasked to probe the controversy, read: "These type of continuous confusions observed on the file whoever be the officer concerned does not show any legitimacy and integrity but only their vested interests... Member(F) should have checked the facts with Sec(T) before putting up the note on the file." "Sec(T)" was secretary Mathur and "Member(F)" Member, Finance, Madhavan.
Soon after, Madhavan, an Indian Revenue Service officer known to be upright, went on leave and applied for voluntary retirement. Mathur retired on December 31, 2007. Behura, who was secretary in the Ministry of Environment and Forests when Raja was in charge of that portfolio, took Mathur's place and signed off on the controversial January 10, 2008 decision.
Great spectrum rush
The beginning of the scramble for telecom licences was signalled four months after Raja became telecom minister. On September 24, 2007, DOT issued a press release stating that applications for new licences offering second generation services would be accepted until October 1, 2007. A rush of applications followed and 575 were received. But in the 100-odd days between October 1 and January 10, telecom policy was about to be upended.
October 19: DOT said there was going to be no cap on the number of Unified Access Service Licence, or UASL, holders in any of India's 22 telecom service areas, also known as circles. UASL is a single licence that allows companies to offer fixed-line, cellular phone, Internet access services, satellite data services, among several other telecom offerings.
Importantly, the same day, DOT legalised 'dual-technology' in mobile telephony services: phone firms could use the Europe-developed GSM technology, short for global system for mobile communications, or CDMA (code division multiple access, a US protocol), or both - there was no restriction.
GSM services were more popular and no GSM-based phone firm applied for the switch to CDMA. All CDMA players, in contrast, had already applied to move to GSM as well - some as far back as 22 months.
Reliance Communications, or RCom, the leading CDMA operator, had sent a letter pleading for GSM spectrum as early as February 2, 2006. HFCL Infotel and Shyam Telelink, now MTS, had made requests on July 11 and August 7 that year, respectively. The three were told to pay the requisite fees within 15 days but RCom, part of the Anil Ambani-promoted Reliance ADAG group, offered to pay Rs 1,651 crore on October 19 itself. Tata Teleservices applied on October 22.
Then came the next flip-flop. K. Sridhara, Member, Technology, Telecom Commission, wrote to the Law Ministry on October 26, 2007, seeking the opinion of the Attorney General or Solicitor General of India on the issuance of new UASLs and the use of dual-technology. Of the options he listed, one suggested September 25 as the cut-off for accepting licence applications, cutting short DOT's original deadline of October 1 by a week. The reason was bizarre: September 25 was "the date on which the cut-off date for receipt of applications were (sic) made public through press". (Several telecom industry people BT spoke to conclude this change of date was done to suit a company that applied for dual technology spectrum. A crucial annexure which contains the paper trail explaining how decisions were taken to bring forward the cut-off date and allot dualtechnology licences was not available with the rest of the Patil report.)
The Law Ministry's prompt response was to set up an empowered group of ministers, a committee of a few members of the Union Cabinet, to look into the matter.
Raja again dug in his heels. On November 2, he opined that the view of the Law Ministry was out of context and the 'First Come, First Served', or FCFS, policy used until then would stay in place and that the 121 approved applications received until September 25 would be considered, not those after that. This, says an industry executive, amounted to "shifting the goalpost after a goal had been scored and ruling out the goal retrospectively".
On January 7, 2008, a note written by A.K. Srivastava, Deputy Director General (Access Services), DOT, reiterated Raja's FCFS policy but with a twist. Those who applied on September 25, 2007 would be eligible for a UAS licence and spectrum rights but the order in which they would get it would depend on who completed the qualifying conditions - such as producing documents to verify terms of the licence and the Rs 1,651 crore draft, among others - first.
This set the stage for the chaos of January 10. At 1.47 p.m. that day, DOT issued a press release officially stating the September 25 cut-off for UASL applications. Less than an hour later, at 2.45 p.m., a second press statement from DOT said all applicants, both for fresh UAS licences and for dual-technology spectrum, must report to the Committee Room of Sanchar Bhawan at 3.30 p.m. To comply with FCFS norms, the applicants would need to pay the Rs 1,651 crore to the government upfront.
The first people to pay and produce documents would be the first to be issued a letter of intent, or LoI, and be the first in line for spectrum.
The applicants had 45 minutes to get a bank draft issued. As Mahesh Uppal, Director of telecom consultancy Com First, says: "This amount of money is hardly something people keep ready. There had always been speculation that Raja knew people in the real estate sector. The small window that was given and the amount sought do hint that information was leaked."
An idea of the rush at Sanchar Bhawan is given by S.E. Rizvi, a DOT Under Secretary, who deposed before Justice Patil. He says he was informed around 10.30 or 11.00 a.m. that counters might need to be set up at Sanchar Bhawan between 3.30 p.m. and 5.30 p.m. to receive the UASL applicants. Put differently, it was known nearly four hours before the 2.45 p.m. press release went out that spectrum would be allotted to 122 UASL applicants that afternoon.
By 5.30 p.m., when Rizvi and other DOT officials wound up manning the counter, the Raja-seeded spectrum rush was over. The winners:
a) Aircel, a company owned by Malaysia's Maxis, controlled by Indian-origin billionaire Ananda Krishnan, whose company Astro in December 2007 picked up a stake in Sun DTH, owned by the Maran family of Chennai. The Marans are closely related to M. Karunanidhi, Tamil Nadu Chief Minister and leader of the Dravida Munnetra Kazhagam party, of which minister Raja is also a member.
b) RCom, the company which offered to pay its Rs 1,651 crore UASL fee the same day DOT announced it could also offer GSM services.
c) Swan Telecom, an unheard of entity until then, but whose director Shahid Usman Balwa is under arrest in the current CBI investigations. News reports quoting unnamed sources link Balwa's DB Realty's roots to Dynamix Dairy, a milk products company in Baramati, the constituency of Agriculture Minister Sharad Pawar.
d) Tata Teleservices. Tata group, in recent weeks, has decided not to "engage" with the India Today Group, which publishes Business Today. In an earlier communication to India Today, it denied benefitting in any way in the Raja controversy.
e) S Tel, controlled by Sivasankaran, the Chennai billionaire and first winner of mobile phone service licences in the metros.
f) Unitech Wireless
g) MTS, and
h) Datacom (now Videocon)
A history of flips and flops
1994: The National Telecom Policy 1994 is announced, setting the stage for cellular mobile telephony service, or CMTS. It says the private sector will play a role, the government will get an annual licence fee. Licences to set up mobile services in four metros awarded, under minister Sukh Ram.
1995: CMTS licences are auctioned for non-metro circles. All the winners, including those who won the metros, bring in foreign partners, since 26 per cent foreign direct investment is allowed in CMTS. Telecom Italia, Swisscom, Telstra, British Telecom, France Telecom and AT&T buy stakes in Indian fi rms.
1997: The Telecom Regulatory Authority of India is formed as an independent regulatory body to oversee the telecom sector and resolve disputes. Between 1997 and 1999, several foreign investors move out because of 'unfriendly policies' although some operators did get additional spectrum in several circles. Beni Prasad Verma is Telecom Minister
1999: When the National Democratic Alliance comes to power, mobile operators owe the government a cumulative Rs 3,500 crore as licence fee. Jagmohan, then Telecom Minister, wants them to pay up. He is replaced by Ram Vilas Paswan, who steers the New Telecom Policy 1999, which sparks explosive growth, but also creates problems
2001-2004: Three telecom ministers go through the ministry in this period - Paswan is replaced by Pramod Mahajan in 2001, who is replaced by Arun Shourie in 2003. This was the time that Reliance Communications, then led by Mukesh Ambani, made its way into cellular services. It used the spectrum allotted to it for last-mile connectivity using Wireless Local Loop-Mobile (WLL-M) to offer CDMA-based mobile services.
Several legal cases were filed by the Cellular Operators Association of India, or COAI. No judgment was delivered in these cases. Instead, a settlement was reached between the operators when, in 2003, then Telecom Secretary Pradip Baijal drafted the Unifi ed Access Service Licence, or UASL, norms. Reliance and Tata Teleservices both applied for UASL, despite the fact that Tata was a shareholder in Birla-Tata-AT&T GSM operator. The Tata group later sold its holding to AV Birla group.
2005-07: After the United Progressive Alliance comes to power in 2004, there is talk of 3G licence auctions. Some operators get spectrum to fi ll in the gaps in their nationwide networks. In 2006, Reliance Communications, now controlled by Anil Ambani, pleads for spectrum in the GSM range to offer services in both GSM and CDMA. The COAI objects to this. Few new licences are awarded. Dayanidhi Maran is Telecom Minister. Call rates drop to Rs 1 a minute. Handset prices fall.
2007-11: Maran loses his job to Andimuthu Raja following a feud within their Dravida Munnetra Kazhagam party. In April, before Raja came in, Maran had sought spectrum allotment guidelines from TRAI. Raja makes selective use of the guidelines to award more licences. Spectrum is not auctioned and UAS licences sold at the 2001 price. In 2010, the Comptroller and Auditor General says this caused a presumptive loss of Rs 1,76,000 crore to the country
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