[economy] 2g scam, spectrum refarming, sistema controversy, allocation of natural resources...

Continuing the series of technically not-so-correct articles on economy.

Whenever you watch TV, receive phone call, send SMS, surf internet.data is being transferred from one place to another,say Ahmedabad to Mumbai.So, If data was a truck, how would you transport it from Abad 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 800-1900MHz3G 2100MHz

4G, broadband internet 2300MHz

(^numbers for illustration only. Different websites will give different numbers.)

So, We first send the truck from Abad 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 willcharge money to whoever(cellphone company) uses this highway (spectrum).

Youre a businessman, you want to launch your own mobile service (like Vodafone, Airtel etc). Therefore youre interested inusing this 2G highway, to transport your trucks (data). You can also use 3G or 4G, which provide faster data transfer, but

[Economy] 2G scam, Spectrum refarming, Sistema controversy, Allocation... http://mrunal.org/2012/11/economy-2g-scam-spectrum-refarming-sistema...

1 of 11 1/1/2004 5:02 AM

theyre more expensive.

New Problem: to access this 2G highway, you need two things

Problem (businessmans side) Solution

Drivers License (to operate the truck)1. Apply to Department of Telecom.

Pay rent/toll for using this highway (spectrum). Just like youpay for using Bandra-Worli sea-link or Yamuna Expressway.

2. Get loan from SBI.Pay the money to Government. Oreven better, bribe minister so they give free spectrum.

Highways have fixed capacity. So Government cannot give license to 500000 truck-drivers else, itll create traffic jam. So, FromGovernments side what should be the ideal solution?

Check the application of driver: does he have previous experience of running telecom business? and more importantly hisclass 10,12 and college marksheets and school leaving certificate.

1.

After verifying his record, Sell the access to this highway (Spectrum).2.

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.

You already know how cinema tickets are sold. The person who is first in the line, gets the ticket. If You come late, you dontget the ticket.This also leads to ticket black-marketeering, for example, I come early, buy all the tickets. You come late, all the tickets aresold, I offer my tickets to you @higher price and make huge profit.This is not good for economy because Im making money without producing any new goods/services=inflation.But according to a theory propounded by Mr.Sibbal, this is zero loss. Because Cinema hall did receive money for ticketsale. So its not like Cinema-hall making losses!

anyways, for common men:

Buying ticket=not crime.1.Buying ticket but not watching movie AND selling that ticket to third person @higher price=crime.2.

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 soldand use that money to finance whatever Development scheme weve 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 morefees from patients @his clinic to keep the profit margin same.So overall effect on economy= may not be good.

Recall that you needed two things to run telecom business

Drivers license1.Access to Spectrum (via paying the money to Government)2.

Government decided that

We will give license by First come first serve basis.1.To get this license, youll have to apply before 1st October 2007 and pay money (Entry Fees) for license.2.And whoever gets the license, he will automatically get spectrum for free. So no need to pay separate money for accessinghighway(spectrum). This is known as Spectrum linked with License.

3.

If we give you the licence (+spectrum), then youll have to cover 10 per cent district headquarters within the first year of theallotment (i.e. you start serving customers in that area). This is known as Roll out Obligation.

4.


2 of 11 1/1/2004 5:02 AM

And then, what happened next, is a classic case of cinema ticket black-marketeering.

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.1,500 crores to Government, as 2G Spectrum License fees.But this company did not open a single outlet/mobile tower. So it didnot meet the Roll out Obligation.It simply sold 45% stakes to UAEs Etisalat for around 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 Sibal and the PM have both said that there was no loss to the government from theallcoation of licenses in 2008, so Im being wrongly accused of corruption and conspiracy.

This company didnot have any prior experiance of telecom business.Yet, Applied for license, paid $365 million as licence fee to Government.Did not open any outlet/mobile tower.Then sold 60% stakes to Norways Talenor for $1.36 billion= huge profit without doing anything.Thus name of company changes: Unitech+Talenor=Uninor.Recall: bought the ticket, did not watch the movie and sold the ticket to third party @higher price.

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 @2001s market rates.Initially the last date to apply for licenses = 1st October 2007. But then Raja changed policy well give license to only thosecompanies who applied before 25th Sept. This way later-comers could not get license (and had to buy it from blackmarket).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. Heshould have cancelled their licenses or imposed heavy fines on them.Companies paid him the bribes, he transferred money to bank accounts under his wifes name in Mauritius and Seychelles.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 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 andher step mom Dayalu Amma and other family members.Arrested in 2011, got bail in 2012, came back in parliament, thus proving that she too, is totallyawesome.


3 of 11 1/1/2004 5:02 AM

There are some phone-tapes, in which this lady is talking with Barkha Dutt (NDTVfame).To put this bluntly, Radia allegedly paid money to Congress party, to get Raja appointedas telecom minister. Then Raja could use the office to benefit particular companies in2G 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.1lakh during questioning by Enforcement Directorate, so she too is totally awesome.Now that shawl has become so recognisable that Kashmiri shawl sellers have startedreferring to it as the Radia shawl and sales of it have shot up= good for economy, GDPincreased.

There are some other players too- RK Chandolia, Siddharth Behura et al, but you get the idea- they too are totally awesome.

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-marketeers, is loss to the cinema hallowner)The question remains, how much money was lost?CAG says Government lost Rs.1.76 lakh crores, it has come to this figure, using extrapolations from

licenses were sold in 2008, @the MRP of 20011.The money received from 3G auction vs the money recieved from 2G license.2.2G Spectrum was allotted for free. (recall Government only asked for entry-fees for licenses. Spectrum was linked withLicense). 2G-Spectrum should have been auctioned.

3.

Profit made by Swan and Unitech etc. through black-marketeering.4.

In Feb-2011, Parliament Constituted a Joint parliamentary Committee to probe the 2G scam. No real progress so far.


4 of 11 1/1/2004 5:02 AM

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 wasTelecom 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, alongwith guidelines for an auction of spectrum.Supreme Court has also ordered Government to finish the auctioning before Jan-2013.

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, itis generated because of man made satellites.)But, Mohan 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 andseek their opinion. This is known as Presidential Reference.Here, first the Cabinet headed by Mohan approves a resolution that WE need to send presidential reference in this xyzmatter.Letter goes to President of India, then he/she sends a new letter to Supreme court asking what should be done in this XYZmatter?

Supreme court said auction cannot be the only method of allocating natural resources, it should be considered on acase-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 allottedthrough auction only. (for example 2G spectrum).In anycase, 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 atransparent and competitive process for the allocation of natural resources.

Since the license are scrapped, and new auction will be held = input cost of mobile companies will increase.So, Theyll increase the call-rates to keep the profit margin same.Therefore final consumer (common men) become the innocent victim in this game.

Norways Talenor and UAEs Etisalat Company had paid heavy price to invest in the telecom sector of India.But since the licenses are cancelled, in future, the foreign investors will be extremely cautious before investing in India,particularly in the sectors related with allocation of spectrum, coal mines etc.

The reputation of Government =already down. So in terms of reputation theyve got nothing to lose.They make excuse that 1) 2G =Zero loss. 2) Since licenses were not auctioned = companies got them cheap = call rates werecheaper = public benefited from this.Congi Government also maintains that we merely followed the policy of NDA (BJP), i.e. spectrum was linked with licenseand first-come-first serve basis. So, if our seniors did brutal ragging on us in the hostel, then we too will continue the glorious


5 of 11 1/1/2004 5:02 AM

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, stateGovernment, union Government. because everybody needs truckload of cash to finance election campaigns.Now Government will auction some 2G spectrum in Nov 2012 and expects to earn around Rs.40,000 crores.And this money could be used to solve the fiscal deficit problem (click me) or to finance any new Government schemes forpoor people.

SBI, PNB and other banks had landed to some of those telecom companies and now licenses are cancelled, so loan-money isstuck.Anyways, nothing new for SBI- their loan-money is stuck with Vijay Mallya (Kingfisher) also.

Theyve to prepare one more stupid topic for exams/group discussion /interview.Anyways, nothing new for them either, theyre used to this irony of life.

Just like Telenor (Norway) and Etilsat (UAE), Sistema (Russia) is also a foreign telecom company.Sistema had bought stakes in an India company (Shyam Telecom), but then Supreme court cancelled their license.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 India that

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.)

1.

Row over Sistema will have great repercussion not only on Indo-Russian bilateral cooperation but also for foreigninvestments in India.

2.

We will not let Sistemas USD 3.1 billion investment in its Indian telecom venture go waste due to internal problems here.3.

This is a separate issue, not directly associated with 2G Scam of A.Raja.In 2001, some companies got License + free spectrum (900 Mhz). (recall that Spectrum was linked with the license.)Theyve to renew their license in 2014.But now Government has changed policy. According to new policy, Spectrum is de-linked from License. So youve to applyfor license separately and you have to purchase spectrum separately (through auction).Telecom Regulatory Authority of India (Trai) has suggested that existing mobile operators will have to surrender the spectrumin the 900 Mhz band at the time of license renewal in 2014.And then, this 900 Mhz spectrum will be auctioned again.Under this so called Spectrum-refarming process, if the companies manage to win in the auctions, they will be able to retainthe spectrum or, in lieu, they would be given the 1,800 MHz spectrum via another auction.Telecom companies are against this decision.Their argument, weve already invested more than one lakh crore rupees in machinery, mobile tower, other infrastructure for900Mhz spectrum. If you take this away and give us new type of spectrum, well have to buy new machines=well increasecall rate price to cover the losses.The matter will now be decided by Empowered group of ministers (EGoM).

For more articles on Economy, visit the Archive-page Mrunal.org/economy

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99 comments to [Economy] 2G scam, Spectrum refarming, Sistema controversy, Allocation of NaturalResources explained

Older Comments 1 2

deepika pawarReply to this comment

explanation was good n thank you sir, happy diwali :)

Aryan RajReply to this comment

Really Interesting facts about 2G.Thx.

:P

inshaReply to this comment

Its really very helpful to understand 2-G Spectrum. Thanks Sir.

shalineeReply to this comment

Awesome!

Rahul BhardwajReply to this comment

excellent explanation sir

amritaReply to this comment

very effective and intresting too..

aranjaliReply to this comment

totally awesome :D :D :d. I mean the whole 2g issue is now clear, otherwise iwd always confuse myself thinking something elsethnx Mrunal Sir

Bhavna TanwarReply to this comment

Awesome way to explain. I was always confused in all this.. now ita crystal clear to me.. Thanks sir

karthikReply to this comment

Thank you sir :)


7 of 11 1/1/2004 5:02 AM

JameelReply to this comment

Hi Mrunal,

Can u explain about todays Economic Times front page article?It says one third of the amount will be refunded etc Could you clarify this article?

http://economictimes.indiatimes.com/news/news-by-industry/telecom/2g-auction-top-three-bidders-wont-pay-a-rupee-for-next-3-years/articleshow/17234302.cms

Shiva RamReply to this comment

Yes Mrunal. Can you give us a similar explanation as to the above article on this spectrum reframing.

jatinderReply to this comment

the way of understanding this difficult stuff to a layman like me is very good.!!

faizReply to this comment

you too are totallywait for it. awesome !!!

NarasimhanReply to this comment

Man you are chetan bhagat I always knew your writing reminds me of someone Now after reading this I am sure YOU AREchetan bhagat Of course not in a pejorative way Anways awsome.. If only someone could simplify all the things in life like you,earth would have been a lot better place to live Please continue to spellbound stupid people like me Many thanks

rajReply to this comment

realy it is very interesting and easy to understand about 2G spectrumthanks a lot marunl sir, keep it up..

kuttiReply to this comment

hi sir very great work u r doing i salute for u r help for us. u r blog was very helpful can u tell how to prepare for this exam first

ShilpaReply to this comment

superb article.hats off to the skill of the writer to make a layman understand such complex issues so easily..

ShilpaReply to this comment

hey u too r totally awesome in real sense..lol

DeepakReply to this comment

SIR, You made such a complex issue very instresting and crsystal clear. really ur awesome sir

praveerReply to this comment

So, We first send the truck from Abad to a Satellite hovering in the sky, and from there, send the truck to Mumbai.Problem: satellite=expensive. Private Player(Businessman) cannot afford it.


8 of 11 1/1/2004 5:02 AM

Solution: Government launches the satellite using ISRO. Thus the highway (spectrum), is created. Then Government will chargemoney to whoever(cellphone company) uses this highway (spectrum).

Youre a businessman, you want to launch your own mobile service (like Vodafone, Airtel etc). Therefore youre interested in usingthis 2G highway, to transport your trucks (data). You can also use 3G or 4G, which provide faster data transfer, but theyre moreexpensive.

sir the xplaination of spectrum is wrong as per your illustrationkindly recheck it..

ParthoReply to this comment

It would be better if you point out the mistake.


otherwise other things are dealt with beautifully..:)

divyasriReply to this comment

sir thanks for making to have a clear cut idea on 2g.

vivekReply to this comment

Sir,You are truly awesome

DineshReply to this comment

Sir, I have a doubt. Why do a single telecom company need to pay billion dollars in getting spectrum as launching a satellite costslesser than that? Probably 2 or 3 companies can join together for launching if it is affordable. Please refer the one below for cost :

http://www.stmary.ws/highschool/physics/97/MGRAHLFS.HTM#Satellite%20vs.%20Terrestrial%20Cost

Regards,Dinesh.

RohitReply to this comment

Launching a satellite is not easy as it seems. You need to first plan all the activities. Takes around 5 years for planning andbuilding. You need to hire scientists and built a workshop. Need many clearances right from Environmental ministry to HomeMinistry. This itself takes indefinite time. Need launcher for it. Once youre done. You need International clearances for the orbitand if the satellite is damaged due to asteroid or some other activity in space, you need to have your own disaster managementand maintenance team in placed which itself is costly to send them to space to repair it. Also Govt will bully you for manyissues such as monitoring the calls, security, phone tapping etc.


see actually spectrum being auctioned is for communication purpose between BTS and Handset, not for Communication betweensatellite and earth station..

Jazz & LiquorReply to this comment

not clear

parmodReply to this comment


9 of 11 1/1/2004 5:02 AM

mrunal bhai you are also awesome

suman naregalReply to this comment

just one word. awesome!!!! no better explanation than yours Mrunal sir..

rathodReply to this comment

thank u sir

rathodReply to this comment

u r genius sir

ParmodReply to this comment

Extraordinary work genius brain hats off .. salute to the man ..

surojitReply to this comment

wowww. ur posts are very informative with a blend of tasty humuor. specially an extra issue for students to cram ;-) really love them

anil pReply to this comment

oh my god ur explanation is awesomeits to impressive n exiciting..god bless you

ramesh krishnanReply to this comment

wooooooo. what a way of explaning.

Naveen EmmanuelReply to this comment

Really great sir. Untill now I was always confused regarding the spectrum refarming issue :).

RaghavaReply to this comment

thanks a ton sir.

KrishReply to this comment

Are ashok chawla committee recommendations are important?..if so let me know..mrunal..thank you.

SUNNYReply to this comment

I had read a number of editorials trying to get an idea over 2G case. finally, I have got something easily understandable andappropriate.

thanx a ton.MRUNAL SIR.

Nidhi


10 of 11 1/1/2004 5:02 AM

Reply to this comment

Simply AWESOME

raghavendraReply to this comment

mind blowing sir :)

ronakReply to this comment

sahilReply to this comment

what did nira radia gain? also, why did she supposedly have to go through barkha dutt to influence the decision to make a raja thetelecom min? why would anyone in the congress take opinions from journalists about policy and parliament decisions??

Older Comments 1 2


11 of 11 1/1/2004 5:02 AM

[economy] 2g scam, spectrum refarming, sistema controversy, allocation of natural resources...

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