The Government of India reportedly lost a substantial amount of money in 2008 because the DoT issued licenses for the 2G spectrum at 2001 prices.

Bending the rules

Tabled in Parliament on 16 November 2010, the Comptroller and Auditor General (CAG) of India’s report on the 2G scam revealed that the Department of Telecommunications (DoT), headed by the Telecommunications Minister A Raja, bent its rules to select certain companies in the 2G spectrum auction.

According to the report, the Government of India (GoI) lost a substantial amount of money in 2008 because the DoT issued licenses for the 2G spectrum at 2001 prices. Furthermore, the cutoff date to apply for the 2G license was advanced, and these licenses were not auctioned in a competitive bid, but sold on a first-come-first-served basis. The advice of the Law and Finance Ministries and of the Telecom Regulatory Authority of India (TRAI) was ignored.

Moreover, of the 122 licenses issued, it was discovered that 85 were awarded to companies that did not meet the basic eligibility criteria.

A Raja has now been forced to resign, and Prime Minister Manmohan Singh has been asked to explain himself to the Supreme Court. Opposition parties have demanded a complete parliamentary probe and have blocked proceedings until the GoI agrees. It is still too early to know whether any licenses will be cancelled, but the pressure to do so is likely to be high because operators have invested in networks and have subscribers.

Any major crackdown could send the wrong signals to investors. However, the GoI may ask operators to compensate for the potential revenue loss indicated by the auditor and may impose fines on investors for not complying with different rollout regulations.