Statement of Sh D Subbarao, S/o Sh Late D Mallikarjan Rao, the then Secretary (Finance), Ministry of Finance, Govt of India , R/o RBI Governor’s Bungalow, 5, M L Dahanukar Marg, Mumbai -400026, Permanent R/o 12, Panchavati Society, Road No 3, Banjara Hills, Hyderabad- 500034 (D.O.B. 11.08.1949), Phone No. 022-22660863 (O), recorded u/s Cr.PC

I am as above. I was posted as Secretary (Finance) during April

30, 2007 to 4th September, 2006.

I have been shown the File No. 3/11/2003-INF (Vol-II) of the

Department of Economic Affairs, Ministry of Finance on the

subject "Committee to examine the optimum spectrum utilization

and other issues Pricing and Allocation of Spectrum". Before I

joined as Secretary (Finance), a Group of Ministers been working

on vacation of spectrum and raising resources for the purpose.

The details of the same are at note-sheet page 38. From note

sheet page 38-42 it is seen that the Terms of Reference issued

by Cabinet Secretariat in February, 2006 included amongst others

the issue of spectrum pricing, however the DOT got the TOR

amended and this issue was dropped. My predecessor Sh Ashok

Jha also raised this issue with Sh D S Mathur, then Secretary

(Telecom) vide a letter dated 28.03.2007 (Page169 of the file).

However, vide a letter dated 02.04.2007 (Page 172) was received

from Secretary (Telecom) wherein it was mentioned that the TOR

issued by Cabinet Secretariat in February 2006 included certain

other issues, including spectrum pricing, which are within the

normal work carried out by this Ministry. The Hon'ble MOC&IT

has written to the Hon'ble PM accordingly in February 2006,

requesting that the Terms of Reference may kindly be modified as

suggested in our original proposal. The revised TOR were issued

by Cabinet Secretariat in December 2006. I hope this clarifies the

matter."

After this the matter was taken up by my predecessor Sh Ashok

Jha, then Secretary (Finance) with Cabinet Secretary vide a

letter dated 19.04.2007 (Page 171). Vide this letter the Cabinet

Secretary was requested to include issues relating to technology

neutral spectrum allocation and spectrum pricing in the terms

of reference of the GOM. Thereafter, a letter dated 17th May,

2007 was received from Cabinet Secretariat, wherein it said

that the Department of Economic Affairs and the Department of

Telecommunications may discuss and resolve the matter at the

level of Secretaries and thereafter Cabinet Secretariat may be

advised about the decision taken in the matter. (illegible) joined

the DEA as Secretary.

I have now seen a Note sheet page (illegible) dated 31.05.2007.

As per note I spoke on the above mentioned issue to the

Secretary, DoT and he told me as following – We have already

complied with this request of DEA. We have agreed to include

technology neutrality in the TORs. However, Spectrum pricing is

a continuing responsibility of DoT and it is neither necessary nor

feasible to include that in the TORs.

I, however, reiterated the position of DEA drawing attention to

letter dated 28.03.2007 of Finance Secretary, DOT reply dated

2.4.2007 and Cabinet Secretariat's letter dated 17.05.2007.

The Secretary, DoT was however disinclined about a meeting

and suggested that I write to him again. In this context I wrote

to Secretary (Telecom) vide my letter dated 6th June, 2007

(Page183). I reiterated our view in the letter and mentioned that

“This matter has been discussed at the level of then

Finance Minister. It is our view that for optimum utilization of

spectrum, a sound policy on spectrum pricing would logically

follow the vacation of spectrum which is the main task of

GoM.”

“I, therefore, request you to reconsider the matter and

include spectrum pricing in the TORs for the GoM."

I have now seen Note sheet page 46 and state that Cabinet

Secretariat, vide their OM No, 111/2/3/2007-CA.V dated 14th

November, 2007 (Page 184) informed that a presentation on the

issues pertaining to Spectrum allocation policy will be made by

Department of Telecommunications before Cabinet Secretary

on 20th November, 2007. Finance Secretary. i.e. I, was also

invited to attend. I attended the said presentation, as recorded

in my note dated 20.11.2007 at note sheet page 46. DOT made

a presentation in the meeting on 'Guidelines for Spectrum

Allocation', a copy of which is in file at pages 394 to 406.

On the basis of the presentation I reopened the issue of spectrum

pricing and wrote a letter dated 22.11.2007 (Page 190). The

contents of the same are reproduced here in below:-

“The purpose of this letter is to confirm if proper procedure

has been followed with regard to financial diligence. In

particular, it is not clear how the rate of Rs.1600 crore,

determined as far back as in 2001, has been applied

for a licence given in 2007 without any indexation, let

alone current valuation. Moreover, in view of the financial

implications, the Ministry of Finance should have been

consulted in the matter before you had finalized the decision.

I request you to kindly review the matter and revert to us

as early as possible with responses to the above issue.

Meanwhile, all further action to implement the above

licences may please be stayed.”

On being asked as to whether the aforesaid meeting dated

20.11.2007 was meant for approval of the dual technology

spectrum approvals given by DOT, I state that it was only to

discuss "Guidelines for Spectrum Allocation" as stated above. On

being asked I state that my letter dated 22.11.2007 was in the

context of Dual Technology, in the letter I raised the basic issue of

pricing of spectrum. The matter was relevant to the new licenses

about to be issued as well.

However, vide a letter dated 29.11.2007, Sh D S Mathur,

Secretary, DoT replied that (Letter at page 407/C):

"As per Cabinet decision dated 31st October, 2003

accepting the recommendations of Group of Ministers

(GoM) on Telecom matters, headed by the then Hon'ble

Finance Minister, it was inter-alia decided that “The

recommendations of TRAI with regard to implementation

of the Unified Access Licensing Regime for basic and

cellular services may be accepted. DoT may be authorized

to finalise the details of implementation with the approval

of the Minister of Communications & IT in this regard

including the calculation of the entry fee depending on the

date of payment based on the principle given by TRAI in

its recommendations." In terms of this Cabinet decision,

the amendment to NTP 99 was issued on 11th November,

2003 declaring inter-alia that for telecommunication services

the licence for Unified Access (Bask and Cellular) services

permitting licensees to provide Basic and/or cellular Service

using any technology in a service area, shall be issued.

The entry fee was finalized for UAS regime in 2003 based

on the decision of the Cabinet. It was decided to keep the

entry fee for the UAS licence the same as the entry fee of

the fourth cellular operator, which was based on a bidding

process in 2001.

The dual technology licences were issued based on

TRAI recommendations of August, 2007. TRAI, in its

recommendations dated 28th August, 2007, has not

recommended any changes in entry fee/annual license

fee and hence no changes were considered in the existing

policy.

On this letter FM desired to examine the issues raised. The matter

was taken up with DOT further vide letter dated 12.12.2007 written

by Ms. Shyamala Shukla, Director (Infra), Ministry of Finance, and

on the basis of the reply and documents received at Ministry of

Finance from DOT vide letter dated 13.12.2007. (illegible) Ms.

Shyamala Shukla, Director (Infra) put up a note on 17.12.2007

(Page 57/N).

At page 61/N is a note sheet wherein the agenda regarding Full

Telecom Commission meeting dated 7.12.2007 has been put

up. Pricing of spectrum was not an agenda item for this meeting.

Later, a meeting of the Telecom Commission was also scheduled

for 9.1.2008, wherein pricing of spectrum was an agenda item.

However, this meeting was rescheduled by DOT to 15.01.2008.

The details in this regard are at page 62/N.

On 10.01.2008, 122 LOIs were issued by the Department of

Telecommunications and the entire circumstances changed. The

option of auction, which we had been pursuing as a method of

pricing spectrum became no longer feasible, as DOT said that

the entities given LOIs were contractually entitled to entry level

spectrum. Thereafter, since auction of spectrum was no longer

possible, our focus shifted to ensuring that the financial interests of

the Govt. were not further compromised.

I have seen the internal note of the Department of Economic

Affairs dated 11.02.2008 (pages 448/C). This note was with regard

to the 2G spectrum only as mentioned in para 7 of the note. The

discussions with DOT were also happening on the revision of

spectrum usage charges and a proposed revised spectrum usage

charges is mentioned in para 11 of the note. As mentioned in the

para 12 of the note, MoF and DoT had agreed on this revision.

Para 22 to 25 of the note discuss the issue of Price Determination

based on growth in AGR/MHz between 2003-04 and 2007-08.

The note says that DOT estimates indicate that AGR/MHz had

increased by 3.5 times between 2003-04 and 2007-08. On this

basis the price of the spectrum works out to be Rs. 1312 Crore per

MHz. These Paras are reproduced herein-

22. A simple single indicator of the growth in telecom

(illegible) in a given circles is the AGR/MHz aggregated

across all operators in that circle. We can estimate the

number of times (multiple) the aggregate AGR/MHz grew in

each circle between 2003/04 and 2007-08. The reference

price embedded in the entry fee for each circle can be

multiplied by this multiple.

23. Assume a pan-India operator, operating across all the 23

circles in the country. A rough estimate made by DoT shows

that across the country, AGR/MHz has increased by 3.5

times between 2003/04 and 2007/08. So, the operator will be

charged Rs 1312 crores (Rs .375 crore x 3.5) for allocation

of 1 MHz of spectrum for operation on a pan-India basis.

Since most operators operate only in some of the circles,

this price determination can be done on a circle-specific

basis.

24. This price determined as above should be charged on

both existing and new operators. Those who do not choose

to pay should be asked to surrender the spectrum allocated

to them.

25. If spectrum is not auctioned but priced as above,

allocation of spectrum will continue to have to be linked to

the subscriber base.”

Prior to these paras there is a discussion on various other

alternatives, including auction and indexing to inflation. The

auction was ruled out in view of it being an extreme measure,

having significant practical and legal implications in view of the

circumstances then. The indexing to inflation was ruled out as

it does not reflect the phenomenal change in technology and

business models during the intervening years. Thereafter, in the

aforementioned paras 22-25, the indexing on the basis of AGR/

MHz was proposed. These matters were discussed with DoT and,

as per para 28 the DoT was of the view that it was not advisable

to price the start-up allocation of 4.4 MHz, as the new entrants

who were given licenses in January 2008 paid the entry fee on

the understanding that they would get this start-up spectrum

without any further charge and pricing start-up spectrum would be

a breach of this understanding and may disturb the level playing

field and also trigger litigation. DOT suggested differentiated

pricing of spectrum, to which Ministry of Finance differed. These

issues are mentioned in the paras 28-31 of the note. These issues

were to be further decided and these issues were mentioned in

pare 33.

These issues were discussed further with DOT, and the details

are mentioned in the note dated 7.04.2008 at page 499 of the

file. DoT wanted the pricing of spectrum to be deferred till auction

of 3G and WiMax. Ministry of Finance did not prima facie agree

with this as per this note. Accordingly a letter dated 08.04.2008

(Page 501/C) was issued by Sh. Govind Mohan, Director, Dept.

of Expenditure to Secretary (Telecom) wherein it was mentioned

that the issues that needed to be decided in respect of 2G

spectrum were discussed by Finance Secretary in three rounds

of meetings with Secretary (Telecom). In February, 2008 and

following amendments were specifically suggested in the Pricing

of Spectrum, its allotment among Access providers and spectrum

usage charges:-

From the note of Sh Govind Mohan at page 504-505 I note that

we decided, with the approval of the Finance Minister, that the

note for CCEA be used as an opportunity to raise basic issues

of pricing of spectrum — for the entire range of spectrum under

commercial use. The details of the deliberation during January,

2008 to April, 2008 on these issues are also mentioned in this

note, and copies of relevant documents are enclosed at pages 506

to 528.

On these issues there was discussion between the Finance

Minister and Minister of Communications & IT also on 30.01.2008,

the notes / details regarding which are at pages 530 to 533.

Thereafter, vide a letter dated 8.2.2008 (Page 534/C) the

Secretary (Telecom) forwarded an approach paper regarding

spectrum charges which are at pages 535 to 539, and covers

most of the issues mentioned above. Annexure to this paper at

page 539 contains the calculation of multiplication factor regarding

AGR/MHz w.r.t 2003-04 to 2007-08, which has been mentioned

as '3.457550198'.

RO&AC

Before me

Sd/-

5.3.2011

(Vivek Priyadarshi)

Addl. Supdt of Police

CBI, ACB, New Delhi