2g spectrum scam (1)

8/7/2019 2G Spectrum Scam (1)

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2G Spectrum Scam


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Spectrum Details

1. What is Spectrum

2. Natural resource

3. Underutilisation


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Spectrum Details

1. Radio freq used for various forms of

communications

2. Space, FM radio, mobile communications,aeronautical satellite services etc

3. Inadequate to service 700 million plus

consumers on mobile networks

1. Call drops

2. Missed sms


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Spectrum Details

1. International Telecommunications Union

2. Country specific allocations

3. Mobile handsets manufactured across theworld operate on GSM 900-1800 bands

4. India NFAP National Freq Allocation

Plan


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Spectrum Details

1. 698 806 not allocated

2. 806 960 GSM & CDMA communications

3. 960 1710 Aeronautical4. 1710 1930 GSM


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1. Minimum spectrum needed to launch GSM

service = 4.4 MHz

2. In 2002 Govt began an additional spectrumallocation process linked to subscriber base.

3. Defence was holding about 65 MHz and

agreed in 2010 that it will sell 45 MHz.

4. Out of this 45, 25 MHz is earmarked for 3G

services


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Historical Overview

1. Pramod Mahajan BJP

1. License fee while awarding licenses vs revenue

sharing (severely criticised). Reliance gained.

2. Arun Shourie BJP

1. Unified Access License UAL

2. Fixed Line operators went WLL. Reliance and

TATA Teleservices gained.

3. A Raja DMK

4. Kapil Sibal Congress


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Facts on 2G allocation

1. Jan 2008. Announcement was released on

DoT website LOIs for licences with

spectrum will be issued between 3:30 and

4:40 p.m.

2. First Come first serve basis

3. Application fee to receive these LOIs ran

into thousands of crores and had to be paid

via demand draft.


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Summary

1. 122 licenses were sold to a total of 15 playersin that limited time window

2. 13 Companies in 85 license case did not

satisfy DoT eligibility criteria3. 45 / 85 were issued to those whose main

business line was not Telecom (as per MoA &AoA)

4. MOCIT received 10772 crore

5. Price base used for the auction was 2001price.


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New and questionable players

1. Unitech real estate company with no exposure inTelecom applied and got spectrum. Cost 1661 Crore. Sold

60% stake soon to Telenor (Norways MNC Telecom

company) Indian Brand name UNINOR at Rs 6200crore.

2. Swan Telecom totally new company with noexposure in Telecom applied and got spectrum. Cost 1537

Crore. Sold 45% stake soon to Etisalat (UAEs MNCTelecom company) at Rs 4200 crore.

3. TATA Teleservices 26 % offloaded to DOCOMOfor 13230 core


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Base Price

CAG in its report is using the price of 3G

auction (of 2010) applying it to the

auction of 2G that happened in 2008- and

then comparing the price used actually

(2001 prices).

2G vs 3G. Isnt 2G closer to 3G these

days?


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Base Price

How is market price determined?

Why is there a stink on the 2001 price

logic Did objectives of government change

mass penetration versus revenue

generation from the sector.


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CAG Price calculation

In Jan 2008 DoT was offering an All India

License at Rs 1658 crores (same as it

wanted in 2001!)

In Nov 2007, Shyam Telecom had

approached Raja & PM stating willingness

to pay 13752 crore for an All India

License.


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CAG Price calculation

As per this benchmark of prevailing price,

122 licenses (35 under Dual use GSM +

CDMA) would have generated 102498

crore.


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DUAL use?

GSM and CDMA both were used by the

players under one license in one circle

Reliance, TATA Teleservices 35 licenses were used like this in reality

As per CAG these dual usage licenses

could have been priced higher and loss ofnot collecting this revenue is pegged at

37154 crore.


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All components

New Licenses (122) Rs. 1,02,498 crores

Dual technology (35 licenses) Rs.37,154 crores

Spectrum beyond contracted quantity of 6.2 MHz

Rs.36,993 crores Total loss Rs.1,76,645 crores


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DoT VS TRAI

Origins

Scope

An impression that TRAIrecommendations are binding is entirely

false. TRAI Act allows DoT to reject,

modify or accept recommendations

subject to procedure laid down under TRAI

Act.


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Sibal vs CAG

Sibals comments CAG used wrong price

Loss is notional, govt could not have earned that much extra

Purpose of auctions have been changing of late and it is unfair to

use 3G auction as a standard In Public interest if more players get license the sector does well,

Revenue of Govt was not the objective.

As per 5 year plan policy documents, Revenue maximisationwas not an objective

Precedents were being followed, as was happening in NDA rule,it continued in UPA also

If other crucial sectors get subsidy, what is wrong with Telecomsector getting some (by way of offering licenses at reduced fee)


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Sibals arithmetic

Government has not made up its mind on the charge forspectrum beyond 6.2 MHz, therefore, loss of Rs.36,993crores needs to be excluded as of now.

The remaining loss of Rs.1,39,652 crores is only Rs.99,000crores since government has only given 4.4MHz spectrum,

while CAG has wrongly calculated loss based on 6.2 MHz. Since the 3G auctions were held in 2010, but 2G licenses

were given in 2008, the timevalue of loss of spectrum is notRs.99,000 crores, but Rs.56,000crores.

Since spectrum was given late and not in 2008, license termis 19, not 20 years, loss is down to Rs.53,000 crores.

Since 3G spectrum is three times more efficient than 2G, theloss is further down to Rs.17,755crores.

Since 4.4MHz is free with UALlicense anyway, the actual lossis zero.


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CAG report, TRAI and other

oppositions to Sibals point of view

TRAI recommendations, 11May, 2010, Section 3.99,

states:

Accordingly, the Authority recommends that all the service

providers having spectrum beyond the contracted quantumshould pay excess spectrum charges at the Current

Price, pro-rated for the period of the remaining validity of

their license subject to a minimum of seven years.


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TRAI Recommendations of 11 May, 2010

(Section 2.47) concludes: Authority is clearly of

the view that contracted spectrum for all access

licenses issued in or after 2001 is 6.2 MHz. The license entitlement is for 6.2MHz. That

4.4MHz has been given initially, does not mean

that the entitlement is limited to 4.4MHz. In most

cases, it is given in phases4.4MHz, then1.8MHz and so on.


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MoCIT thinks time value of money works

between 2008 and 2010, but fails between 2001

and 2008.


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Did the new players finally add to

the sector?

2g spectrum scam (1)

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