- Whenever we watch TV, receive phone
call, send SMS, surf internet….data is being transferred from one place to
another, say Chennai to Mumbai.
- So, if data was a “truck”, how would we
transport it from Chennai to Mumbai (or vice versa)?
- Obviously via highway.
- Spectrum is that highway.
Based on
the ‘width’ of the highways, we classify them into following
Cable
TV
|
145-860MHz
|
2G
|
800-1900MHz
|
3G
|
2100MHz
|
4G,
broadband internet
|
2300MHz
|
- So, we first send the truck from Chennai
to a Satellite hovering in the sky, and from there, send the truck to
Mumbai.
- Problem: satellite=expensive. Private
Player (Businessman) cannot afford it.
- Solution: Government launches the
satellite using ISRO. Thus the highway (spectrum) is created. Then
Government will charge money to whoever (mobile company) uses this
highway (spectrum).
You’re a
business man; you want to launch your own mobile service (like Vodafone, Airtel
etc). Therefore you’re interested in using this 2G highway, to transport
your trucks (data). You can also use 3G or 4G, which provide faster data
transfer, but they’re more expensive.
New
Problem: to access this 2G highway, you need two things
Problem (businessman’s side)
|
Solution
|
1.
Driver’s License (to operate the truck)
|
Apply to Department of Telecom.
|
2.
Pay rent/toll for using this highway (spectrum). Just
like you pay for using Bandra-Worli sea-link or Yamuna Expressway.
|
Get loan from SBI. Pay the money to
Government. Or even better, bribe minister so they give free spectrum.
|
Highways
have fixed capacity. So Government cannot give license to 500000 truck-drivers
else, it’ll create traffic jam. So, from Government’s side what should be the
“ideal” solution?
1.
Check the application of driver: does he have previous experience
of running telecom business?
2.
After verifying his record, sell the access to this highway
(Spectrum).
Another
problem: how should Government sell access to this Highway (Spectrum)?
Ans:- Two
methods, 1) first come first serve 2) Auction.
Both have their advantages and problems.
Both have their advantages and problems.
Method 01: FCFS
- We already know how cinema tickets are
sold. The person, who is first in the line, gets the ticket. If we come
late, we don’t get the ticket.
- This also leads to ticket
black-marketeering, for example, I come early, buy all the tickets. Another
person comes late, all the tickets are sold, I offer my tickets
to you @ higher price and make huge profit.
- This is not good for economy because I’m
making money without producing any new goods/services=inflation.
- But according to a theory propounded by
Mr. Kapil Sibal, this is “zero loss”. Because Cinema hall did receive
money for ticket sale. So it’s not like Cinema-hall making losses!
Anyways,
for common men:
1.
Buying ticket=not crime.
2. Buying
ticket but not watching movie AND selling that ticket to third person @ higher
price=crime.
Method 02: Auction Method
- As the name suggest, auction the
tickets. If person A offers Rs. 200 for a seat and Person B offers Rs. 500
for the same seat, then sell the ticket to Person B.
- From theatre owner (Govt)’s point of
view: this method may look good, because now we can earn more money per
ticket sold and use that money to finance whatever Development scheme
we’ve in our mind.
- Here is the problem: if Person B was a
doctor, and he had to shell out Rs. 500 for one movie ticket. Then he may
charge more fees from patients @ his clinic to keep the profit margin
same.
- So overall effect on economy = may not
be good.
What happened in 2G scam?
Recall
that we needed two things to run telecom business
1.
Driver’s license
2.
Access to Spectrum (via paying the money to Government)
Government
decided that
1.
We will give license by “First
come first serve basis”.
2.
To get this license, you’ll have to apply before 1st October 2007 and pay money (Entry
Fees) for license.
3.
And whoever gets the license, he will automatically get spectrum
for free. So no need to pay separate money for accessing highway (spectrum).
This is known as “Spectrum linked with License”.
4.
If we give you the license (+spectrum), then you’ll have
to cover 10 per cent district headquarters within the first year of the
allotment (i.e. you start serving customers in that area). This is known as
“Roll out Obligation.”
And then,
what happened next is a classic case of cinema ticket black-marketeering.
--> Swan Telecom (Sahid Balwa)
- A new company,
it had no experience of running telecom business. Yet it applied for
license and got it.
- (officially) SWAN telecom paid about Rs.1500 crore to Government, as 2G Spectrum
License fees.
- But this company did not open a single
outlet/mobile tower. So it did not meet the “Roll out Obligation”.
- It simply sold 45% stakes to UAE’s
Etisalat for around Rs. 6000 crore rupees.
(Calculate the profit %)
- Shahid Balwa was arrested in 2011,
released on bail, thus proving that he is totally awesome.
- His argument in the court, “Since Mr.
Kapil Sibal and the PM have both said that there was “no loss” to the
government from the allocation of licenses in 2008, so I’m being wrongly
accused of corruption and conspiracy.”
--> Unitech (Sanjay Chandra)
- This company did
not have any prior experience of telecom business. Yet, Applied for
license, paid $365 million as license fee to Government.
- Did not open any outlet/mobile tower.
- Then sold 60% stakes to
- Thus name of company changes: Unitech+Telenor=Uninor.
- Recall: bought the ticket, did not watch the movie and sold the ticket to third party @higher price.
--> Union Telecom Minister (A Raja)
- Ignored the advice of PM, Finance
Ministry, Law ministry, TRAI etc.
- TRAI had advice Raja to sell the
spectrum via ‘auctioning’.
- But Raja used “first come first serve
basis.”
- Licenses were
sold in 2008 but the price (entry fees) were kept very low @2001’s market
rates.
- Initially the last date to apply for
licenses = 1st October
2007. But then Raja changed policy “we’ll give license to only those
companies who applied before 25th Sept.” This way later-comers
could not get license (and had to buy it from ‘black market’).
- He allowed ineligible companies to apply
and get license (e.g. Unitech)
- The companies who got license but did
not start business (UNITECH and SWAN)…Raja did not take action against
them. He should have cancelled their licenses or imposed heavy fines on
them.
- Companies paid him the bribes he
transferred money to bank accounts under his wife’s name in
- Arrested in 2011, got bail in 2012, came
back in parliament, thus proving that he is totally (and that means
totally) awesome.
- DMK
MP, Daughter of former Tamil Nadu CM and DMK Supremo Karunanidhi.
- Shahid
Balwa (SWAN) got benefit because of Raja. So he had to pay the ‘bribe’.
- He
transferred Rs.200 crores to “Kalaignar TV channel”, which is owned by
Kanimozhi and her step mom Dayalu Ammal and other family members.
- Arrested in 2011, got bail in 2012, and came back in parliament, thus proving that she too, is totally awesome.
--> Neera Radia
- There are some
phone-tapes, in which this lady is talking with Barkha Dutt (NDTV fame)
and some others.
- To
put this bluntly, Radia allegedly paid money to Congress party, to get
Raja appointed as telecom minister. Then Raja could use the office to
benefit particular companies in 2G auction (who had financed his ‘posting’). This phone
scandal is known as “Radia Gate”.
- Only
questioned, not arrested, and it is said that she wore a Kashmiri
shawl worth Rs.1 lakh during questioning by Enforcement Directorate,
so she too is totally awesome.
- Now
that shawl has become so recognisable that Kashmiri shawl sellers have
started referring to it as the Radia shawl and sales of it have shot up=
good for economy, GDP increased.
There are
some other players too- RK Chandolia, Siddharth Behura, etc, but we get the
idea- they too are totally awesome.
Estimation of CAG:-
- The 122 2G licenses were given by Raja
for over Rs 9,000 crore.
- While 3G auctions for a smaller number
of licenses had fetched the government a sum of Rs 69,000 crore.
- Therefore Government has lost money
(Besides, whatever money made by ticket black-marketers, is loss to the
cinema hall owner)
- The question remains, how much money was
lost?
- CAG says Government lost Rs.1.76
crores, it has come to this figure, using extrapolations from
1.
licenses were sold in 2008, @the MRP of 2001
2.
The money received from 3G auction vs the money received
from 2G license.
3.
2G Spectrum was allotted for free. (recall Government only asked
for entry-fees for licenses. Spectrum was linked with License). 2G-Spectrum
should have been auctioned.
Profit
made by Swan and Unitech etc. through black-marketeering.
Parliament - JPC:-
In
Feb-2011, Parliament Constituted a Joint parliamentary Committee to probe the
2G scam. No “real” progress so far.
SC Verdict:-
- Subramanian Swami, filled a petition in
Supreme court, regarding the irregularities in 2G Auction.
- The case went on, finally in Feb 2012 the
Supreme Court cancelled 122 licenses issued in 2008, by A Raja when he was
Telecom Minister.
- Supreme Court said, these licenses were
granted in an “arbitrary and unconstitutional” manner.
- SC asked the Telecom Regulatory
Authority of India (TRAI) to recommend a new process of allocation of
licenses, along with guidelines for an auction of spectrum.
- Supreme Court has also ordered Government to finish the auctioning before Jan-2013.
Presidential Reference on SC Verdict:-
- After above verdict of Supreme court,
Government decided to get clarification, on whether should every natural
resources (coal, gas, petroleum, water etc) be allotted through auction
only. (although technically “Spectrum” is not a natural resource, it is
generated because of man made satellites.)
- But, PM cannot just call any SC judge
and seek clarification. A procedure has to be followed.
- Through Article 143 of the Indian
constitution, the president can refer matters of public interest to the
Supreme Court and seek their opinion. This is known as “Presidential
Reference”.
- Here, first the Cabinet headed by PM
approves a resolution that “We need to send presidential reference in this
xyz matter.”
- Letter goes to President of India, then he/she sends a new letter to Supreme court asking “what should be done in this XYZ matter?”
SC on Presidential Reference:-
- Supreme court said auction cannot be the
only method of allocating natural resources, it should be considered on a
case-by-case basis.
- Earning maximum revenue is secondary to
serving the public good in allocating natural resources.
- But if allocation of a particular
resource is going to get sudden huge profit to a company, then such
resource should be allotted through auction only. (for example 2G
spectrum).
- In any case, all decisions and actions
of the government are open to being questioned by the court.
Apart
from that, a committee on allocation of natural resources, headed by Ashok
Chawla, also recommended the adoption of a transparent and competitive process
for the allocation of natural resources.
Impact of SC Verdict:-
Customers
- Since the license are scrapped, and new
auction will be held = input cost of mobile companies will increase.
- So, They’ll increase the call-rates to
keep the profit margin same.
- Therefore final consumer (common man)
become the innocent victim in this game.
Foreign Investors
- But since the licenses are cancelled, in
future, the foreign investors will be extremely cautious before investing
in
Government
- The reputation of Government =already
down. So in terms of reputation they’ve got nothing to lose.
- They make excuse that 1) 2G =Zero loss.
2) Since licenses were not auctioned = companies got them cheap = call
rates were cheaper = public benefited from this.
- Congress Government also maintains that
we merely followed the policy of NDA (BJP), i.e. spectrum was linked with
license and first-come-first serve basis. So, if our seniors did brutal
ragging on us in the hostel, then we too will continue the glorious
tradition by brutally ragging our juniors.
- Anyway nobody is a saint when it comes
to allotment of land, coal reserves, spectrum etc be it congress, BJP,
state Government, union Government. because everybody needs truckload of
cash to finance election campaigns.
- Now Government will auction some 2G
spectrum (Govt earned Rs 9400 crore from new auction on Nov 2012)
- And this money could be used to solve
the fiscal deficit problem or
to finance any new Government schemes for poor people (if govt
wishes).
Banks
- SBI, PNB and other banks had landed to
some of those telecom companies and now licenses are cancelled, so
loan-money is stuck.
- Anyways, nothing new for SBI- their
loan-money is stuck with Vijay Mallya (Kingfisher) also.
Innocent aspirants of competitive exams
- They’ve to prepare one more stupid topic
for exams/group discussion /interview.
- Anyways, nothing new for them either, they’re used to this irony of life.
Sistema Issue:-
- Just like Telenor (
- Sistema had bought stakes in an
- Now Sistema has appealed the Supreme
court to restore its license, current matter is pending in court.
- In the light of this event, Russian
Government has warned
1.
“If the issue of cancellation of 2G license to Sistema is not
resolved in Indian courts, we will go for international arbitration.” (because
Russian Government too holds about 17% in this Sistema-Shyam telecom company.)
2.
Row over Sistema will have “great repercussion” not only on
Indo-Russian bilateral cooperation but also for foreign investments in India
3.
We will not let Sistema’s USD 3.1 billion investment in its Indian
telecom venture go waste due to “internal problems” here.
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