Radio ripples that sparked a political storm

The government, as reported on Tuesday, is unlikely to seek a review of the Supreme Court ruling that cancelled 122 telecom licences linked to the spectrum scam estimated at Rs 176,000 crore by the CAG. But the ruling will have a bearing on allocation and pricing of all natural resources in future. Here's a lowdown:

india Updated: Feb 28, 2012 21:44 IST
Manoj Gairola
Manoj Gairola
Hindustan Times

What's the 2G scam all about?
The department of telecommunications (DoT) headed by Raja, it has been alleged, decided on who should be given the licences much before the bids had come, exploiting loopholes in the first-come-first-served (FCFS) policy.

What is first-come-first-served (FCFS)?
FCFS policy means the applicant standing first in the queue is offered the spectrum.

What happened in the 2G scam?

The government allotted licences on the FCFS policy to companies without established credentials on mobile telephony. Telecom licences and spectrum was granted in 2008 at 2001 prices and some of the companies were accused of divesting equity at significantly higher prices.

Telecom firms, it has been alleged, were awarded licences arbitrarily and granted 2G spectrum (radio frequency) on January 10, 2008 were offered at extremely cheap rates robbing the government of revenues.

How did the scam happen?
On September 24, 2007, four months after he took over as the telecom minister, Raja triggered a mad scramble for telecom licences. The DoT issued a press statement giving companies a week's time to apply for mobile phone licences. DoT received 575 applications as little-known firms jostled against each other clamouring to get a slice of India's booming telecommunications pie. On January 10, 2008, the DoT granted 122 licences, allegedly ignoring advice from other ministries and bypassing the Cabinet and other forums of inter-ministerial consultations.

What has the Supreme Court ruled?
The Supreme Court, in a judgment on February 2, 2012 cancelled the 122 2G spectrum licences granted on January 10, 2008 on the ground that they were issued in a “totally arbitrary and unconstitutional” manner. The Supreme Court also came down heavily on the FCFS policy and termed it fundamentally flawed.

Which companies would be affected by the SC judgment?
Uninor (JV between Unitech and Telenor of Norway), Loop Telecom, Sistema Shyam (JV between Shyam and Sistema of Russia), Etisalat DB (JV between Swan and Etisalat of UAE), S Tel, Videocon, Tata Teleservices and Idea Cellular.

What next?

The SC has fixed a four-month timeframe for implementation of the order and TRAI has been given two months to make fresh recommendations for grant of licence through auction.

What about subscribers?
Subscribers will not be affected as they can shift to other operators.

What will happen to tariffs?
Expect tariffs to go up as higher cost of spectrum and reduced competition may nudge companies to raise call rates. About 46.3 million or 5% of total subscribers are likely to be affected.

What happens to banks who had lent to these companies?
Banks have lent close to a combined Rs 26,000 crore to all the 8 firms that would be affected the SC ruling. Banks may eventually invoke the legal option of auctioning properties of these companies in case they fail to repay their loans.

How much revenue will the government earn from the auction of this spectrum?
It will depend on the modalities of auction and reserve price that is set. It is likely that the budget for 2012-13 will contain an estimate of what the government expects to earn from this auction.

What is the flip side of abandoning FCFS?
Auctions favour large corporations with deep pockets that can lead to monopolies. Only the rich and wealthy can win auctions in the cases like of allotment of DDA flats.

What will be the government's next step?
It will not seek a review of the judgment, but is likely to make a reference to the top court to get a final word on the allocation of natural resources.

First Published: Feb 28, 2012 21:22 IST