Msc business and management dissertation ankit yadav - 450148

PORTSMOUTH BUSINESS SCHOOL

MSC BUSINESS AND MANAGEMENT

Title: Irregularities performed by Indian Department of
Telecommunications in allocation of second generation
telecom licences in 2008.

Author: Ankit Yadav (450148)

Tutor: Mr. John Walton

Year of Submission: 2010/2011

Statement of Originality: This project is been submitted in partial

fulfilment of the requirements for the degree of MSC Business and Management. I,
the undersigned, declare that this project is my own work. Where I have taken ideas
and or workings from another source, this is explicitly referenced in the text.

Signed_______________________________________

Permission for the inter-library loan: I give permission that this

report may be photocopied and made available for the purpose of research.

Signed_______________________________________

Acknowledgements:
The writing of this dissertation has been one of the most significant academic
challenge that I ever had to face. Without the support, patience and guidance of the
following people, this research would not have been possible. It is also them that I
owe my deepest gratitude to.

 Senior Lecturer Mr. John Walton who undertook to act as my dissertation
supervisor despite his other academic and professional commitments. His
wisdom, knowledge and commitment to the highest standards inspired and
motivated me.

 A good friend and mentor Mrs. Ann Brierley and my parents who always
supported, encouraged and believed in me, in all of my endeavours let it be
personal or professional.

2G Spectrum Scam Dissertation 2 Ankit Yadav – 450148

Abstract:
In the last two decades the telecom sector in India witnessed rapid transformation
with the National Telecom Policy – 94 setting the stage for opening up of the sector.
With changes in the sector, cellular mobile services outgrew the fixed line services.
The most important change was the shift to a revenue sharing model in the National
Telecom Policy – 99 where the mobile service operators shared their revenues with
the government of India in the form of annual licence fee and spectrum charges. The
Unified Access Services Licence (UASL) 2003 sought to frame the road map for a
unified licensing regime.

In January 2008, Department of Telecommunications (DOT) issued 120 new
licences for unified access services on the same day. These licences were issued at
a price which had been discovered in 2001 has drawn the attention of Media,
Parliament of India and informed members of civil society. Questions have been
raised regarding the transparency in the allocation process and the failure in
maximisation of revenue generation from the allocation of spectrum, which is
considered to be a national asset. The flagship auditing agency of India Comptroller
and Auditor General of India (CAG) had been receiving innumerable complaints from
Members of Parliament and other sources repeatedly, questioning the allocation
process and the price fixed for such allocation. The claim in each reference was that
ineligible applicants seem to have been granted licences at a price which appeared
far below what has been perceived to be the appropriate market price in 2008. It was
in this context that the researcher of this dissertation felt that there was enough
justification to review the entire process of issuance of licences, award of licences,
award of spectrum and the implementation of the UASL model.


Table of Contents:
Acknowledgements: ................................................................................................... 2

Abstract: ..................................................................................................................... 3

List of Abbreviations: .................................................................................................. 7

List of Tables and Figures: ......................................................................................... 9

1.0 Objectives: ......................................................................................................... 10

2.0 Introduction: ....................................................................................................... 11

2.1 Overview of Telecom Policies Since 1994: ..................................................... 12

2.1.1 National Telecom Policy (NTP – 94): ....................................................... 12

2.1.2 National Telecom Policy (NTP – 99): ....................................................... 12

2.1.3 Unified Access Services Licence (UASL – 2003): .................................... 13

3.0 Literature Review ............................................................................................... 15

3.1 What are spectrum auctions? ......................................................................... 15

3.1.1 Multi – unit auctions: ................................................................................ 16

3.2 Second generation spectrum auctions in India: .............................................. 17

3.2.1 Service areas (or circles):......................................................................... 17

3.2.2 Entry conditions:....................................................................................... 18

3.2.3 Auction Results: ....................................................................................... 18

3.3 Flawed arguments against auctions: .............................................................. 18

3.4 Third generation spectrum auction in India and UK: ....................................... 19

3.4.1 UK third generation spectrum auction: ..................................................... 19

3.4.2 India third generation spectrum auction: .................................................. 21

3.5 Financial impact of second generation spectrum scam in India: ..................... 24

3.5.1 Under pricing of second generation spectrum and consequent loss: ....... 25

3.6 Procedures adopted in issuance of UASL and allotment of spectrum: ........... 29

3.6.1 Undue haste in receiving and processing of applications: ........................ 30

3.6.2 Multiple activities on 10th January 2008: .................................................. 31

3.6.3 Three applicants provided pre-dated bankers drafts: ............................... 32

3.6.4 FCFS policy of DOT was not followed in full spirit: ................................... 32

3.6.5 How the sanctity of DOT‟s FCFS policy violated: ..................................... 33

3.6.6 Access to dual technology:....................................................................... 33

3.7 Implementation of Unified Access Services Model: ........................................ 35

3.7.1 Gaps in implementation of UAS model: ................................................... 35

3.8 Acts of corruption: ........................................................................................... 37

4.0 Research Design and Methodology: .................................................................. 38

4.1 Introduction: .................................................................................................... 38

4.2 Research Approach: Selection and Justification of Methods Used: ................ 38

4.3 Case Study Approach: .................................................................................... 39

4.4 Sampling: ........................................................................................................ 40

4.5 Questionnaires:............................................................................................... 41

4.6 Methodology Reviewed: ................................................................................. 42

4.7 Technical and Ethical Issues: ......................................................................... 42

4.7.1 Technical Issues: ..................................................................................... 42

4.7.2 Ethical issues: .......................................................................................... 43


4.8 Secondary Research: ..................................................................................... 43

5.0 Results and Findings: ..................................................................................... 45

6.0 Conclusion: ........................................................................................................ 55

7.0 Recommendations: ........................................................................................ 58

References: .............................................................................................................. 60

Appendices: ............................................................................................................. 66

Appendix One: Pre-dated Bankers Drafts:............................................................ 66

Appendix Two: Press Release by DOT on 10th January 2008: ............................. 67

Appendix Three: Financial Bank Guarantee (FBG): ............................................. 68

Appendix Four: Ethics Approval Form: ................................................................. 69

Appendix Five: Questionnaire Structure: .............................................................. 74

Appendix Six: E-Mail Questionnaire Covering Letter: ........................................... 77

Copy of E-mail sent to sample on 19th August 2011: ........................................ 78

Appendix Seven: Primary Data Tables: ................................................................ 80

General Information Section: ............................................................................ 80

Raw Survey Data: From Q1 – Q5: .................................................................... 84

Raw Survey Data: From Q6 – Q10: .................................................................. 88

Appendix Eight: Time Line: ................................................................................... 93

Appendix Nine: Filled Out Questionnaires: ........................................................... 94


List of Abbreviations:
AGR – Adjusted Gross Revenue

BSO – Basic Service Operators

BWA – Broadband Wireless Access

CAG – Comptroller and Auditor General of India

CDMA – Code Division Multiple Access

CEO – Chief Executive Officer

CMSO – Cellular Mobile Service Operators

DOT – Department of Telecommunication

EGOM – Empowered Group of Ministers

FCFS – First Come First Serve

GOM – Group of Ministers

GSM – Global Subscriber Mobile

LOI – Letter of Intent

MOC & IT – Ministry of Communications and Information Technology

MHZ – Mega Hertz

NTP – National Telecom Policy

One Crore – Ten Million Rupees

One GBP – Seventy Two Rupees

TCI – Telecom Commission of India

TRAI – Telecom Regulatory Authority of India

UAS – Unified Access Services

UKRCA – United Kingdom Radio Communication Agency

ULM – Unified Licensing Model

SUC – Spectrum Usage Charges

2G – Second Generation

3G – Third Generation

` - Rupee Currency Symbol

* India is divided into 22 service areas or circles

** In January 2008, DOT issued 122 (LOIs) against which only 120 licences were
issued. Two more licences were issued in July 2008.


List of Tables and Figures:
Tables:

Table 1 UK third generation spectrum auction format

Table 2 UK third generation spectrum auction winners and winning bids

Table 3 India‟s third generation spectrum auction winners and winning bids

Table 4 Telecom operators which attracted Foreign Direct Investment

Table 5 Procedure for the issuance of UASL

Figures:

Figure 1 Growth of telecom network (wireless and wire line) in India

Figure 2 Revenue of account of spectrum charges and licence fee

Figure 3 A dynamic auction scenario


1.0 Objectives:
This dissertation has three core objectives:

 Whether the policy for the issuance of licences under the Unified Access
Services Licence (UASL) scheme was implemented effectively;

 Whether the Unified Access Services Licence (UASL) and the radio
spectrum was allocated in a fair, transparent and efficient manner and;

 Whether the potential for revenue maximisation for government of India
was optimally utilised by Department of Telecommunication (DOT).


2.0 Introduction:
In the last two decades, the Indian economy has emerged as one of the fastest
growing telecom market in the world. Till 1994 the Department of Telecommunication
(DOT) provided the telecommunications facilities in India. In late 1994 the National
Telecom Policy (NTP) was formulated and this allowed private companies to enter
the telecommunication business in India. The total number of subscribers stands at
787.28 million (wireless subscribers 752.19 million which is up by 9.38 percent from
the previous quarter and wire line subscribers 35.09 million which is down by -1.34
percent from the previous quarter) as of 31st December 2010, making India the
second largest telecom market in the world after China (TRAI, 2011).

The following graph below shows the telecom sector growth since 2003:

Figure 1: Growth of Telecom Network (Wireless and Wire line)

(Source: TRAI – Performance Indicators Report, 2011)


2.1 Overview of Telecom Policies Since 1994:

2.1.1 National Telecom Policy (NTP – 94):
It was in 1994 when the first National Telecom Policy (NTP – 94) was announced by
the government of India with following objectives in mind: providing
telecommunications services to all i.e. ensuring the availability of telephone on
demand as early as possible, providing universal service covering all remote villages
as soon as possible, the quality of telecom services should be of world standard,
also considering India‟s size and making sure that India in the long run emerges as a
major manufacturing hub and exporter of telecom equipment, and finally the defence
and security interests of the country should be protected (DOT, 2002).

2.1.2 National Telecom Policy (NTP – 99):
In 1999 a new telecom policy was announced, the main driver for this new policy
was that some of the objectives of NTP – 94 remained unachieved and also there
were several far reaching developments in the telecom, IT, consumer electronics
and media industries world-wide since the last policy came into force. The main
objectives of NTP-99 were firstly, creating a modern and efficient
telecommunications infrastructure taking into account the convergence of IT, media,
telecom and consumer electronics and therefore propelling India into becoming an IT
superpower. Secondly, providing telecom services on demand by 2002 and
sustaining it thereafter so as to achieve a tele-density of seven percent by 2005 and
fifteen percent by 2010. Thirdly, the new policy also aimed to lift restrictions on the
number of telecom service providers for the Basic Service Operators (BSOs) and
Cellular Mobile Service Operators (CMSOs) as well, as long as they satisfied the
conditions laid by DOT. Lastly and the most important objective of NTP – 99 was to
migrate all the operators who were operating under fixed licence fee model to a
revenue sharing model. In this new model operators were required to pay a
percentage of their Adjusted Gross Revenue (AGR) as annual licence and Spectrum
Usage Charge (SUC) to the government of India. The percentage of revenue sharing
was different for every circle (or service area)* for telecom operators where they
operated. The following graph provides an insight of revenues (AGR and SUC)
generated by DOT since 2003 (DOT, 2003).

Figure 2: Revenue of account of Spectrum Charges and Licence Fee

2.1.3 Unified Access Services Licence (UASL – 2003):
In 2003, Empowered Group of Ministers (EGOM) approved the recommendations
submitted by Telecom Regulatory Authority of India (TRAI). TRAI on 27th Oct 2003,
suggested that technological developments are rendering service based division of
telecommunications redundant, increasingly the services provided under one licence
can also be provided under another licence due to such developments (TRAI, 2003).
According to TRAI the consequences of this are that even before a telecom service
provider has fully realised his/her investment his primary business activity is
threatened or made irrelevant due to technological developments in other areas,
enabling the other licence holder to overlap with the first one (TRAI, 2003). This
further leads to disputes and often litigation between the service provider and
Government of India, claims are made on Government to provide compensation and
TRAI further suggests that there is no justification in continuing a service wise
licensing model where fast changing technologies will invariably place burdens on
the Government of India in the future. In TRAI‟s 2003 recommendations, the key
recommendation is that the present licensing model should be replaced by a unified
model for all services and geographical areas using any technology and leaving it for


the service provider to use the best technology at all times (TRAI, 2003). EGOM on
11th Nov 2003 accepted all of the TRAI‟s recommendations and all further licences
were issued under Unified Access Services Licences (UASL) model.

In April 2007 the government of India again sought recommendations, as per the
provisions of TRAI Act. The Government wanted recommendations on the issue of
determining the number of access providers in each service area and a review of the
terms and conditions in the access provider licence (TRAI, 2007). In response TRAI
on 28th Aug 2007 recommended; firstly, that no cap can be placed on the number of
service providers in any service area. Secondly, DOT should examine the issue early
and specify appropriate licence fee for Unified Access Licence (UAS) licensees who
do not wish to utilise the spectrum. And finally, in order to frame new spectrum
allocation criteria, a multi-disciplinary committee may be constituted, this committee
may be headed by an eminent scientist/technologist from a national level scientific
institute like the Indian Institute of Sciences, Bangalore (TRAI, 2007). TRAI also
suggested if a licensee wants to use dual technology (Code Division Multiple Access
(CDMA) and Global Subscriber Mobile (GSM)), he/she can go ahead in doing so,
provided that such licensee pays the same amount of fee which has been paid by
the existing licensees using the dual technology or which would be paid by the new
licensee going to use either CDMA or GSM (TRAI, 2007). In 2007-2008 thirty five
licensees were allowed to use dual spectrum and were also allocated spectrum
(CAG, 2011).


3.0 Literature Review

3.1 What are spectrum auctions?
Reliable and efficient spectrum access is vital for the growth and innovation of
wireless technologies. Unfortunately, historical and current spectrum regulations
assign different technologies with static spectrum in long-term leases to prevent
interference among them. Overtime, this has led to under-utilisation of spectrum,
slowing down wireless deployments. To realise efficient spectrum usage, it is
necessary to migrate from the current static spectrum access to dynamic spectrum
access (Gandhi, S, Buragohain, C, Cao, L, Zheng, H and Suri, S, 2007).

One promising solution is spectrum trading that applies priced based incentives to
stimulate users to sell and lease under-utilised spectrum. One particular form of
trading is auctions, widely known for providing efficient allocation of scarce resources
(Borenstein, S, 2002). Sellers use auction to improve revenue by dynamically pricing
based on buyer demands. Buyers benefit since auctions assign resources to buyers
who value them the most. Hence, many systems use auction based allocation
models, including energy markets, treasury bonds and commercial goods
(Borenstein, S, 2002 and Binmore, K. and Swierzbinski, J, 2000).

Figure 3: A dynamic auction scenario

(Source: Gandhi, S. et al, 2007. A General Framework for Wireless Spectrum Auctions)

(Left) An auctioneer performs periodic auctions of spectrum to buyers. (Right) A
conflict graph illustrates the interference constraints among buyers. Figure 3


illustrates a general spectrum scenario where n buyers (wireless service providers)
bid for spectrum from a seller (government agencies or spectrum owners) who
auction its spectrum periodically, i.e. every hour (Gandhi, S. et al, 2007).

3.1.1 Multi – unit auctions:
Though auctions have been used widely to provide efficient allocation of scarce
resources, including the sale of single item indivisible goods (e.g. a painting), single
items in multi-unit bundles and multi-unit bundles (e.g. bonds) (Vries, D., and Vohra,
R, 2003 and Sandholm, T. and Suri, S, 2001), but a successful auction system must
not only produce financial efficiency, but also provide an efficient bidding process
and fast execution (Krishana, V, 2002).

Given bids, auctioneers use auction-clearing algorithms to compute the revenue-
maximising prices and auctions. Clearing is simple in single-item single-unit
auctions: assign the item to bidders with the highest bid. However, auctioning multi-
unit items can be much more complex since the multiple winners split the items. The
complexity of clearing algorithms also depends on the complexity of bidding
language (Sandholm, T. and Suri, S, 2001 and Gandhi, S. et al, 2007).

Multi-unit auctions have two pricing models:

 Uniform pricing: The auctioneer determines a price unit and applies it to all
winning bidders. The auction clearing problem here is to determine a market
clearing price that maximises the auctioneer‟s revenue. EBay multi-unit
auctions have been using this model (EBay, 2011).

 Discriminatory pricing: The auctioneer charges different prices to different
bidders. While producing higher financial revenue, this model is also
perceived as less “fair” to bidders than the uniform pricing model (Gandhi, S.
et al, 2007). The various issues that arise in uniform pricing versus
discriminatory pricing models have been studied in diverse markets such as
US treasury security auction (Malvey, P. and Archibald, C, 2011), government
bond auctions in UK (Binmore, K. et al, 2000), and electricity auctions in
California (Borenstein, S, 2002 and Hudson, R, 2001). For one time auctions,
discriminatory pricing always generates more revenue. On the other hand
uniform pricing is simple, and provides “fairness” to bidders and promotes
aggressive bidding (Malvey, P.et al, 2011). However, uniform pricing is
suspected to create collusion among the bidders (Bourjade, S, 2006) and for


unsettled market, it might be more dangerous with respect to the amount of
revenue it generates (Malvey, P.et al, 2011). Because of these complex
factors, it is best to leave the choice of pricing model to auctioneers as they
are the experts in this field.

3.2 Second generation spectrum auctions in India:

In the early 1990s when private initiatives started to rise in telecom and broadcast
services, demand for spectrum increased. Digital technology helped to increase the
scope of applications and created new areas of service provision. Mobile phones
and wireless internet access are examples of such services, despite the
technological changes which reduce the demand for spectrum; there is still serious
scarcity of spectrum (Jain, 2001). To overcome this problem and allocate spectrum
amongst competing service providers, governments and regulatory agencies around
the world often use auctions. From the perspective of regulatory agencies, spectrum
auction ensures efficient usage by allocating it to those companies or service
providers which value it most; this also generates enormous revenues for the
governments. But if the auctions are poorly designed and executed they can also
lead to unexpected outcomes, for example, when the policy makers and regulatory
agencies get the key information wrong like inadequate market knowledge and a gap
between the actual behaviour and expected behaviour of the bidder (Jain, 2001).
Therefore regulatory agencies and policy makers around the world face a question;
how to design an auction that meets the objectives, like fostering competition so the
consumers can benefit and also at the same time ensuring that the winning bidders
can use the spectrum effectively for their business (Jain, 2001).

3.2.1 Service areas (or circles):

Firstly the telecom licences were auctioned for basic and cellular services from 1991
by the DOT, the incumbent government policy maker, regulator and service provider.
India was divided in twenty two circles (or service areas), which are characterised as
A, B and C depending on their revenue potential. DOT decided to have two
operators per service area for cellular services and for basic services there would be
one more operator besides DOT in each of the service area (Jain, 2001).


3.2.2 Entry conditions:

In order to gain entry into the bidding process, potential service providers were
required to collaborate with foreign partners, as DOT and the government of India
felt that none of the Indian companies had the requisite financial resources and
technical capabilities. Bidding was a two stage process for all the licences, the first
stage was a pre-qualification bid based on the financial net worth (this was linked
with the category of circle (or service area) A, B or C and the type of the service
provision) and also experience in the service provision and the second stage
involved the evaluation of bids (Jain, 2001).

3.2.3 Auction Results:

Before the bidding started, there was no cap on the number of circles that could be
awarded to a single bidder. It was only when it was found that a single company has
won licences in nine circles and had ended up bidding very high. Straight away there
were doubts about this company‟s ability to pay the licence fee in all the circles (or
service areas); if those licences would have been awarded then the payment
requirement would have been $15 billion over 15 years while the annual turnover of
that company was only $0.06 billion. The DOT and government of India allowed the
winning bidder to choose three circles as it was apparent that by awarding all nine
circles to a single company, it would be replacing public monopoly by a private one
(Jain, 2001).

3.3 Flawed arguments against auctions:

According to McMillan (1995) and Binmore (2001), some flawed arguments against
spectrum auction crop up every now and then. These arguments appear to be
standard and could come from every country‟s spectrum regulators. First one of
them claims that auctions eliminates the discretion in the selection process and
diminishes their capabilities as spectrum managers. Second claim says that the
concept of owning spectrum is not consistent with the principle of leasing and can
lead to problems if decisions are subsequently made to recover and reallocate the
spectrum (McMillan, 1995). The third argument considers that the auctions are unfair


to companies who are forced to bid. It is true that existing operators are forced to bid
for new licences or value of their previous investment might fall sharply (Binmore and
Klemperer, 2001). According to Binmore and Klemperer (2001), none of the
spectrum auctions around the world have seen fewer licences than incumbents, so
the prices were set by the marginal bidders – new entrants who have nothing to lose
if they failed to win a licence. Further building on this point in India, UK, Germany,
Italy and elsewhere, some of the new spectrum licences were won by companies
who had no previous experience and presence in those markets, this proved that
companies who were under no pressure saw the risk worth taking (Binmore and
Klemperer, 2001). Indeed in India, several of the licences winners sold minority
stakes to foreign investors for a profit even though they did not have a single
subscriber (see table four). Fourth, common misconception about the auctions
seems to be that companies investment costs to obtain a spectrum licence will be
passed on to the consumers in form of higher charges. This argument might be
partly true where companies have bid for royalties, but this argument is generally
mistaken in an auction in which companies make one time lump sum payments. Like
any other company, telecom companies will charge the prices that will maximise
their profits, independently of what they have paid for the spectrum in the past
(Binmore and Klemperer, 2001). Lastly, the final misconception regarding spectrum
auctions is that large auctions fees may slow investment because of the capital
market constraints, this argument might be true theoretically, but it is very unlikely
that very many highly profitable investments are being forgone because of the
difficulty raising the funding for them (Binmore and Klemperer, 2001).

3.4 Third generation spectrum auction in India and UK:

3.4.1 UK third generation spectrum auction:

In April, 2000, the United Kingdom Radio Communications Agency (UKRCA)
completed its first spectrum auction which raised around £22.5 billion for five 3G
mobile licences (Cramton, 2001). The overall aim of the United Kingdom government
was “to secure the long term benefit of United Kingdom customers and the national


economy, the timely and economically advantageous development and sustained
provision of 3G services in United Kingdom” (Ofcom, 2001).

Table 1: UK third generation spectrum auction format:

Licence Category A B C D E

Paired Spectrum 2 x 15 2 x 15 2 x 10 2 x 10 2 X 10
MHZ MHZ MHZ MHZ MHZ

Unpaired Spectrum 5 MHZ 0 MHZ 5 MHZ 5 MHZ 5 MHZ

Total 35 MHZ 30 MHZ 25 MHZ 25 MHZ 25 MHZ

(Source: Crampton, 2001. Lessons Learned from the UK 3G Spectrum Auction)

Table 1 illustrates the UK third generation (3G) spectrum auction format, which
shows the number of licences and amount of bandwidth available with each licence.
Licence A was set aside for the new entrant in the market and all of the bidders
could bid on any of the remaining licences (B to E), these licences were valid for
twenty years (Crampton, 2001). There were several important details which were
attached with auctions like, spectrum cap where a company (or associated
companies) could only win one licence; this guaranteed that there would be five
distinct companies for the provision of 3G services. Deposits potential bidders were
asked to deposit an initial deposit of £50 million to enter the bidding, this deposit was
further increased to another £50 million when the bid exceeded £400 million, and this
deposit was fully refundable if the bidder lost the bidding. Payment winning bidders
were given option to either pay in full after the auction or they could choose to pay in
instalments (Cramton, 2001).

The UK 3G auction which started in March 2000 and ended in April 2000, the auction
comprised of over 150 rounds and seven weeks of bidding. There were thirteen
companies which competed for five licences, the UK 3G auction was the largest
auction to date, raising just over £22.5 billion in revenues (Ofcom, 2001). This

amount surpassed the total revenues generated by the all of the US spectrum
auctions, which is quite remarkable given that the US is at least 4.5 times the size of
the UK market see table 2 (Cramton, 2001).

Table 2: UK 3G spectrum auction winners and winning bids:

Licence Paired Unpaired Winning Price Bid (£ £
Spectrum Spectrum Bidders million) million/MHZ

A 2 X 15 5 T-Mobile £4,385 £125.29

B 2 X 15 0 Vodafone £5,964 £198.80

C 2 X 10 5 BT £4,030 £161.20

D 2 X 10 5 Three £4,004 £160.16

E 2 X 10 5 Orange £4,095 £163.80

(Source: Crampton, 2001. Lessons Learned from the UK 3G Spectrum Auction)

The prices of licences exceeded everyone‟s expectations let it be government,
industry observers, bidders and taxpayers as well. There is no question that the 3G
auction was a success in terms of generating revenues for the United Kingdom
government (Cramton, 2001).

3.4.2 India third generation spectrum auction:

After coming under much criticism for its spectrum allocation policies with Second
Generation (2G) spectrum, the government of India decided to take the auction route
for Third Generation (3G) and Broadband Wireless Access (BWA) spectrum. On 09th
April 2010, DOT commenced the e-auction of spectrum licences 3G services, and
soon to follow broadband wireless spectrum auction. The auction involved three or
four blocks of 3G spectrum and two blocks of BWA spectrum in twenty two service


areas or circles. According to the DOT the primary objectives for the auction were to
award spectrum transparently and fairly, promote efficient use of spectrum which will
stimulate competition and encourage roll-out and lastly the auction will generate
maximum revenue for the Indian exchequer which was the biggest loser in 2G
spectrum allocation which was carried out on a First Come First Serve (FCFS) basis
and on a price which was determined in 2001.

Every auction for the 3G spectrum in India‟s twenty two telecom circles was carried
out separately but as a simultaneous process and the process was conducted over
the internet. Selected bidders were provided authentication tokens and passwords to
access the e-auction website from their own computers (Tirpathy, 2010). In this e-
auction process the names of the bidders were not disclosed during the auction, only
the total numbers of applicants were known. The e-auction comprised of multiple
rounds and at the end of the each round provisional winners were declared.
Rothschild and DotEcon, the auctioneers announced higher prices for every round
and then looked for demand at that price (DOT, 2010). If for a service area where
there were three slots available and at least six bidders, then the price increment
was 10 percent, if there were five bidders for three slots, then the price increment
was 5 percent and for four bidders for three slots the price increment was 1 percent,
these measure were taken to prevent cartelisation (DOT, 2010).

The initial money deposited (as per DOT guidelines) by the bidder determined its
eligibility to bid in the first round, each round earned the eligibility points for the
bidder to participate in successive rounds. Only valid bids based on eligibility points
were accepted. At the end of the e-auction, bidders were notified of the provisional
outcome on a confidential basis. The government had to approve the results before
they were made public (Tirpathy, 2010). The winning bids for 3G spectrum were `
67,710 crore (£ 9.40 billion, at ` 72 to a pound), which by far exceeded the
government‟s original expectation of ` 35,000 crore (£ 4.86 billion) (Wharton, 2010).
It was on day 20 of the 3G auction when the auction price of 3G airwaves for mobile
telephony crossed the ` 1,658 crore (£ 230.28 million) mark in Mumbai and New
Delhi alone – this was the price at which new operators were given licences
nationally in 2008 (Ghosh, 2010).


Former telecom minister A. Raja faced severe criticism and was sacked by
Honourable Prime Minister in November 2010 for allocating 2G spectrum in
2008 at a price which was discovered in 2001. A. Raja faces accusations of
causing a loss of ` 1 trillion to the Indian exchequer by following an FCFS
policy instead of auction policy as recommended by TRAI in 2007 (Ghosh,
2010).

After a successful auction carried for third generation spectrum, DOT released the
list of successful bidders which outlined the number of circle (or services areas) won
by the bidder, winning bids and the amount of money to be paid to DOT before any
licence can issued. Table 3 illustrates the auction results for the third generation
spectrum auction in India.

Table 3: India’s third generation spectrum auction winners and winning bids:

Winning Bidder Service Price £ million Price £ million/service area
Areas

Bharti Airtel 13 £1,707.70 £131.36

Vodafone Essar 9 £1,613.59 £179.28

Reliance Telecom 13 £1,192.36 £91.72

Tata Teleservices 9 £814.48 £90.49

Idea Cellular 11 £801.19 £72.83

Aircel Limited 13 £902.70 £69.43

S Tel Limited 3 £46.89 £15.63

BSNL 20 £1,414.80 £70.74

MTNL 2 £911.67 £455.84

Total 93 £10,125.38 _______________________

(Source: DOT, 2010. 3G Auction Update on Payment Methodology)


3.5 Financial impact of second generation spectrum scam in India:

The pan India entry fee for a UASL was fixed at ` 1,658 crore (£ 230.28 million) this
price is the same as the price captured from the market for a CMSL in 2001. In 2003
DOT took the decision to adopt this price with a view not to delay the implementation
of UASL. It is quite clear from the bidding pattern which was followed in 2001 that the
2001 price was discovered in a nascent market and considering the revolutionary
changes in the Indian telecom market since then, there is no doubt in concluding that
the same 2001 price did not reflect the economic value of a licence in 2008 (CAG,
2010).

There are two issues which can help explain this further:

 It was in 2003 when EGOM took the decision to make UASL only an
instrument to enter the telecom business for providing cellular and other
mobile services irrespective of the technology used for the purpose of service
delivery. There are different spectrums that make use of different technology
which is then used to provide different kinds of telecom services and that‟s
why 2003 UASL policy was formulated, in the second phase of 2003 UASL
implementation, was particularly directed towards disassociating the licence
from the type of service that the service provider intends to provide (CAG,
2010). So this means that once a service provider has obtained the licence or
the authorisation to provide the telecom services he/she can approach DOT
and obtain the spectrum required for the services he/she intends to provide
and the spectrum could be obtained either through paying its auction price or
any other arrangement decided by DOT or any other independent regulatory
agency appointed by the government for this matter (CAG, 2010). As the
policy was not reviewed for over four years, the issue of delinking the entry
fee from the price for the use of spectrum remained unaddressed. It was in
August 2007, when TRAI recommended to the government that 2G spectrum
should not be auctioned and mentioned “in today’s dynamism and
unprecedented growth of telecom sector in India, the entry fee which was set
in 2001 is also not the realistic price for obtaining a licence either”. As there
was no price discovery for the 2G spectrum separately, the entry fee of 2001
was taken as the entry fee for 2003 UASL (TRAI, 2007).

 In the process of ascertaining any loss while trying to come up with a value of
the spectrum in hindsight is only presumptive, the reason for this that there
are varied factors like its scarcity value, the nature and intensity of
competition, business plans proposed by bidders, time of entry, economic

growth of the country and industry, purchasing power of consumers, etc.,
which in a market condition, would throw up the actual prices at a given time
(CAG, 2010). When Dot was trying to fix the entry auction reserve price for 3G
spectrum it correctly observed that “the key determinants of spectrum value in
a competitive auction (where demand is always more than supply) are the
level of competition in the auction and the attractiveness of the business plan
for using the spectrum” (DOT, 2010). That‟s why instead of trying to come up
with a specific value of 2G spectrum which could only be possible through the
market price discovery involving the demand and supply position and the
attractiveness of business plan for using the spectrum in future, the
researcher has looked at various indicators to assess a possible
(presumptive) value, from the various records available publicly rather than
going for any mathematical/econometric models.

3.5.1 Under pricing of second generation spectrum and consequent loss:

3.5.1.1 UASL applicant offered higher price:
Interestingly, S TEL Limited, who had also applied for UASL in September 2007, in
its communication to the Prime Minister voluntarily offered to pay an additional share
of ` 6,000 crore (£ 833.34 million) to the DOT for a pan India licence over and above
the spectrum charge which is ` 1,658 crore (£ 230.28 million) payable as per the
exciting policy (Joshi, 2011). That‟s not all S TEL limited revised its previous offer
from ` 6,000 crore (£ 833.34 million) to ` 13,752 crore (£ 1.91 billion) in December
also wrote to DOT and also further agreed to increase its bid price in event of any
counter bid or auction of spectrum for GSM on a pan India basis (Joshi, 2011).

If the price offered by S TEL Limited is used as an indicator to determine the market
valuation of the 2G spectrum, value for all 122 new licences and 35 dual technology
licences work out to ` 65,909 crore (£ 9.15 billion) as against ` 12,386 crore (£ 1.72
billion) actually received by the DOT in 2008 (Joshi, 2011). It is quite clear from the
above argument if an open process of bidding or auction was used for the price
discovery of 2G spectrum and hasty and abrupt changes in deadlines and dates
were not made, then the DOT would have been able to raise much more revenue for
the government.

In January, 2011 Communications and IT Minister Kapil Sibal in a press meeting in
New Delhi, said that S TEL Limited had attached conditions to their offer which were


not acceptable to the government, moreover, S TEL limited withdrew their offer in the
supreme court of India and that‟s why there was no loss to the Indian exchequer
(Joshi, 2011). The contention of Mr. Sibal is not correct as the S TEL Limited had
withdrawn their offer in March 2010 i.e. after more than two years, it is only when the
ground realities in the Indian telecom sector has changed drastically and S TEL
Limited‟s competitors were already awarded the UASL in 2008 which allowed them
enough time to build the required infrastructure to roll out services which led S TEL
limited to withdraw its offer (Joshi, 2011). The researcher has only used offers made
by S TEL Limited in this research as an indicator of market value of the 2G
spectrum, if these offers would have been accepted by DOT the revenue generated
for the government for the 2G spectrum could have been quite substantial.

3.5.1.2 Value of second generation spectrum on the basis of price discovered
for third generation spectrum through auction in 2010:
In September 2006 TRAI submitted its recommendations to the government of India
in which TRAI had recommended a reserve price for one licence of 2 x 5 MHz 3G
spectrum pan India licence at ` 1,010 crore (£ 140.28 million) but later in the same
month the EGOM was formed to look at 3G spectrum issues revised the reserve
price to ` 3,500 crore (£ 486.12 million) (TRAI, 2006). In 2010 TRAI submitted it‟s
other recommendations report to government in which TRAI observed that current
2G service providers are actually offering 2.75G services. Therefore CAG in its audit
report in 2010 concluded “while comparing spectral efficiency and other factors, it is
fair to compare existing 2.75G systems with 3G systems”. So in order to calculate
the total loss to the Indian exchequer, the researcher has chosen to adopt the
current 3G spectrum licences prices.

As the researcher calculates the 2G spectrum prices at 3G rates which can also be
taken as one of the indicators for assessing the value of 2G spectrum allocated to
UASL in 2008, the total value works to ` 1,11,512 crore (£ 15.48 billion) as against `
9,014 crore (£ 1.25 billion) realised by DOT in 2008. It is the same case with the dual
technology licences as well, if the 2G licences were issued at 3G prices then the
value would have worked out to ` 40,526 crore (£ 5.62 billion), as against ` 3,372


crore (£ 468.34 million) collected by DOT in 2007-08. The total difference works out
to ` 1,39,652 crore (£ 19.39 billion).

The researcher again reiterates that the original value of 2G spectrum could only
have been obtained through the market drawn process and as it was not carried out
by DOT, the researcher has used the indicators available which provide hints
towards the loss that Indian exchequer would have suffered. The revenues
generated through the 3G auctions is mentioned earlier in this research and this also
shows the benefits of resorting to an open price discovery process and the value that
spectrum can command without compromising the policy of open competition.

3.5.1.3 Sale of equity by UASL holder firms at a higher value:
According to DOT guidelines on UASL, the total Foreign Direct Investment (FDI) by
the investing company should not go beyond 74 percent. This 74 percent FDI can be
either made directly or indirectly in the operating company or it can be done through
an holding company (49 percent FDI is automatic and beyond 49 percent the
investing company has take approval from the Foreign Investment Promotion Board
–FIPB) and rest of the 26 percent is to be owned by an resident Indian citizens or
Indian Company (Incorporated under Company‟s Act 1956) (DOT, 2010).

Table 4 illustrates the list made public by DOT, there were several UASL holders
including the new entrants, which were able to attract huge amount of FDI in the
recent years (specifically since January 2008).

Table 4: Telecom operators which attracted Foreign Direct Investment (FDI):

S.No Name of the Operator Percentage of equity Value of equity sold
sold in £ million

1 Swan Telecom 50% £499.65

2 S Tel Limited 5.61% £33.12

3 Unitech Wireless 67.25% £850.00

4 Tata Teleservices 27.31% £1,795.00


5 Tata Teleservices 20.25% £131.80
Maharashtra

6 Sistema Shyam Teleservices 63.71% £452.91
Limited

(Source: CAG Audit Report, 2010)

Three companies Swan Telecom, S Tel Limited and Unitech Wireless are the new
entrants to the telecom sector in India. It is quite astonishing to see that these new
entrants could attract such huge amounts of FDI, even before putting the
infrastructure in place and rolling out services to consumers would force any industry
or sector observer to strongly question the motives of these companies, were these
companies just acquiring the UASL to attract the FDI and this could FDI be used in
other group companies of these parent companies (PTI, 2011). Further building on
this fact of attracting huge amounts of FDI and motives behind them, particularly
Unietch Wireless‟s parent company Unitech Group (this parent company is a real
estate major in Indian housing market), in financial year 2007-08 Unitech Group had
a debt of ` 8,000 crore (£ 1.12 billion) and its share price was down 92 percent
since January 2008 and according to investment bank BNP Paribas “the company’s
interest coverage ratio (EBITDA/Gross Interest) remains dangerously high at 2.2X
declining to 1.9X by FY10” (Stanley, Kalesh and Hussian, 2008).

According to CAG 2010 audit report, Unitech Wireless wrote to DOT in November
2008 that Telenor of Norway has approached them for purchasing a stake in the
company and stressing the point that Unitech Wireless has put about six months of
effort and around ` 2,100 crore (£ 291.67 million) in to the company and the
company‟s value was just not just based on only on the 2G spectrum that it acquired
earlier in the year (PTI, 2011). But CAG in its audit report emphasised an important
point that Telenor of Norway is an international experienced company which has
interests in telecommunications, data and media communications services and it is
also Norway‟s largest company with the government having a controlling stake of 54
percent and what Telenor would have required to start offering telecom services was
primarily access to a UASL. So considering Telenor‟s trained manpower strength in
12 countries, its long standing technical expertise and international experience of

dealing in telecom business, it can be convincingly concluded that, the high value
paid by Telenor to Unitech Wireless was primarily for the spectrum and not for other
inputs claimed to have been infused by Unitech Wireless (CAG, 2010). So the huge
value which should have gone to the Indian exchequer went as a favour to the new
UASL holders in the form huge of FDI infusion for enriching their other businesses.

3.6 Procedures adopted in issuance of UASL and allotment of
spectrum:
Table 5: Procedure for issuance of licences:

Receipt of Application  Applications are received in central registry and
application date is recorded for making priority list.

 Enclosures include requisite processing fee.

Processing of  Scrutiny of applications based on the criteria contained in
Application the guidelines.

 Final priority list of eligible applicants is drawn up.

Issuance of LOI  LOI to be issued in 30 days by post to eligible applicants.

Compliance of LOI  Compliance to LOI conditions within 15 days from the
conditions date of issue of LOI.

 Payment of one-time entry fee.

 Submission of Performance Bank Guarantee (PBG) and
Financial Bank Guarantee (FBG) by the applicant.

Issuance of Licence  Signing of UASL licence agreement.

 Licensee becomes eligible to apply for wireless licence.

Application for  Application of wireless licence.
Spectrum
 Allocation of spectrum on FCFS basis.

(Source: CAG Audit Report, 2010)


As a result of gaps left in the implementation of the UASL 2003 policy it led to a
situation where on one hand the allocation of the spectrum was not de-linked from
the licences and on the other hand applications for the new licences were continued
to be received by the DOT without even framing the guidelines for the UASL 2003
(CAG, 2010). As per the guidelines issued by DOT for the issue of licences as
mentioned in the table above, UASL were to be issued on the continuous basis
without putting any cap on the number of the entrants in a particular service area,
also the applications received for the UASL were to be processed within thirty
working days of submission and the allocation of radio spectrum and grant of
wireless licence were subject to the availability of spectrum and in cases where the
UASL holder was unable to get the spectrum due to the unavailability of the
spectrum, the UASL holder had to roll out the services using the wire-line technology
(CAG, 2010).

According to the audit report by CAG – 2010 application for the issue of new UASL
were not processed within the prescribed time-frame and were delayed without a
strong reason. Further in its report CAG points out that in 2004-05, fourteen out of
the fifteen grants of UASL were delayed for 608 to 969 days and the same pattern
followed in 2005-06 as all nine applications received by DOT were delayed by 232 to
431 days and all twenty nine applications received by DOT in 2006-07 were not
processed till October 2007 and all of this happened without providing a legitimate
reason for the delay and no records and without sending any communication to the
applicants (CAG, 2010).

It was in April 2007 when DOT sought TRAI‟s recommendations on the issue of
limiting the number of access providers in each service area and TRAI in its
recommendations published in August 2007 recommended “no cap” on the number
of licences (TRAI, 2007).

3.6.1 Undue haste in receiving and processing of applications:
Though TRAI recommended “no cap” in August 2007, on 24th September 2007
DOT released a press note stating that “it has been decided that new applications for
Unified (Telecom) Access Services (UAS) Licences will not be accepted by
Department of Telecommunications (DOT) after 01.10.2007 till further orders” (DOT,

2007). This press note artificially put a cap on the number of licences to be awarded,
which led to sudden influx of applications. Till the issue of the press note the total
number of applications for the grant of the licence stood at 167 which included
pending applications since March 2006, but after the artificial cap was announced by
DOT, further 408 applications were received for a grant of licences in the next eight
days resulting in accumulation of 575 applications till the declared cut-off date of
01.10.2007 (CAG, 2010). This sudden influx of applications indicated that the mobile
network operators were aware that the spectrum was a scarce resource and such
scarcity would leave little of no spectrum for future allocations (BS Reporter, 2011).

3.6.2 Multiple activities on 10th January 2008:
DOT on 10th January 2008, released another press note stating that “DOT has
decided to issue LOIs to all eligible applicants on the date of application who applied
up-to 25.09.2007” (DOT, 2008). The press release also stated that “DOT has been
implementing a policy of FCFS for grant of UASL under which initially an application
which is received first will be processed first and thereafter if found eligible will be
granted LOI and then who so ever complies with the conditions of LOI first will be
granted UASL” (DOT, 2008). If examined carefully this stipulation introduced by the
DOT for the first time actually made the date of the application irrelevant and grossly
violated the transparency of the FCFS policy being followed by the DOT in the
process of issuing the licences.

But according to the audit report published by CAG -2010, in the draft press release
to keep the inter-seniority of applicants based on their date of applications, if one or
more applicants complied with LOI conditions on the same day. But the telecom
minister personally deleted this provision from the press release observing that the
proposal was “not necessary as it is a new stipulation” (see appendix two) while at
the same time forgetting the basic stipulation “who so ever, complies with the
condition of LOLs first will be granted UASL” was also a new stipulation being added
for the first time (CAG, 2010).

On the same day (14:45 pm) DOT released another press note asking all applicants
to assemble at the DOT headquarters within forty five minutes (i.e. by (15:30 pm) to
collect letters in response of their application for grant of UASL (DOT, 2008).

Applicants who were found eligible for the LOI collected their LOIs and also 120
acceptance of applications were also received on the same day as well, as far as the
compliance to the terms and conditions of LOI is concerned 78 applicants submitted
their documents with requisite fee on the same day and the remaining on the
following day (CAG, 2010). It is quite contradictory that DOT took over 100 to 500
days to process the applications for the grant of UASL and when it came to the
applicants to assemble at DOT premises to collect LOIs, it only allowed only less
than a day to comply with the LOI conditions (BS Reporter, 2011).

3.6.3 Three applicants provided pre-dated bankers drafts:
According to CAG in its audit report CAG-2010, noticed that three applicants were
even ready with bankers drafts drawn on dates prior to the notification the of cut off
date (see appendix one), further building on this there was an applicant who also
submitted the Performance Bank Guarantee (PBG) and the Financial Bank
Guarantee (FBG) which was prepared on 10th January 2008 in Mumbai to DOT on
the same day (see appendix three) (PTI, 2011). This shows that these applicants
were privy to advance information regarding the issue of press release by DOT
which allowed to take appropriate advance actions to draw bankers drafts and
prepare other relevant documents which allowed them to comply with LOI conditions
even though the date for compliance of LOI was changed by DOT from fifteen days
to about half a day (CAG, 2010 and Reuters 2011).

3.6.4 FCFS policy of DOT was not followed in full spirit:
In January 2008, DOT arbitrarily decided to issue the LOIs simultaneously to all
applicants, who had submitted their applications from March 2006 to 25th September
2007, by doing this DOT deprived the applicants who had submitted their
applications earlier, of their seniority and claims of earlier applicants to get the LOIs
first. Further building on this DOT altogether removed the importance of date of
submission of application in the FCFS policy by allowing the applicants to obtain to
collect LOIs who complied with the LOI conditions before the earlier applicants.
Further damage came to DOT‟s credibility as a regulatory agency and transparency
and objectivity of FCFS policy when details like date of issue of LOIs were leaked to
a few applicants, which helped these applicants to be ready with pre-dated bankers

drafts of millions of pounds prior to the date of issue of the press release calling for
applicants to collect the LOIs from the DOT on 10th January 2008.

In its audit report CAG -2010, further criticised the DOT for the lack of transparency
and the allotment of UASL with the objective of favouring a few firms over others.
CAG -2010 report also noted that certain firms like Swan Telecom Private Ltd, which
actually submitted its application for the grant of the UASL on 02nd March 2007, was
allotted the spectrum for the Delhi service area on 28th August 2008, while another
firm Spice Communications Ltd which had submitted its application for the Delhi
service area in August 2006 was not allotted the spectrum till their audit report was
published in November 2010. This just not happened only on one occasion but this
was the same case with several firms, in another example, Spice Communications
Ltd applied for the spectrum on 31st August 2006 in Mumbai service area and was
allotted spectrum in May 2009, while the new entrants in the market like Unitech
Wireless and Videocon Communications applied for spectrum in September 2007
and were allotted spectrum in September 2008 (CAG, 2010).

3.6.5 How the sanctity of DOT’s FCFS policy violated:
 Abrupt fixation of arbitrary cut-off dates in September 2007 for the receipt of
application, completely ignoring the recommendations of TRAI;

 Clubbing all applications together and issuing LOIs simultaneously,
completely ignoring the basic facts and mandate of FCFS policy;

 Changing the method in which FCFS was applied from the date of the receipt
of applications to date of compliance of LOI conditions;

 Basic fact and proposal to allow the inter-seniority of applications based on
their application date, which was based on the fact if more than one applicant
complied with the LOI conditions on the same day was rejected and;

 Make confidential information like the date of issue of LOIs to select few
applicants which allowed them to prepare pre-dated bankers drafts and other
necessary documentation which was required to comply with LOI conditions.

3.6.6 Access to dual technology:
DOT in April 2007 requested TRAI to prepare recommendations if the mobile service
providers should be permitted to offer services to consumers using combination of


technologies (CDMA and GSM) TRAI produced and presented its recommendations
to DOT in August 2007. According to TRAI‟s recommendations, “a UASL holder
using one technology either GSM or CDMA may be permitted on request to use
alternative technology GSM or CDMA depending upon the request and the service
provider should be permitted to use dual spectrum if approved by DOT. However,
such a UASL holder must pay the same amount of fee which has been paid by
existing UASL holders who are using the alternative technology or which would be
paid by the new entrant in the market who is going use that technology” (TRAI,
2007).

Till 2006 four companies (Reliance Communications, Tata Teleservices, Shyam
Telelink and HFCL Infotel) were providing mobile services by using CDMA
technology under UASL, it was in 2006 when three out of four of these companies
applied for the permission to use dual technology (CDMA/GSM or any other for that
matter) as the combination of technologies were not permitted by DOT till beginning
of 2007 there application was not approved (CAG, 2010). It was only in August 2007
when DOT accepted the recommendations made by TRAI regarding the usage of
dual technology to provide mobile services; DOT for the first time took the decision to
allow dual technology on 17th April 2007 this decision was made public through a
press note released by DOT (DOT, 2007). But according to CAG audit report CAG -
2010 and Press Trust of India (PTI, 2011), before DOT announced that its going to
accept the recommendations provided by TRAI on 17th October 2007, DOT gave
approval to three companies for using GSM technology on 16th October 2007 (a day
before the press release) using the “in-principle” approval, these three companies
requested DOT in 2006 if they can dual technology which was well before DOT even
asked TRAI for its recommendations, again it is observed by CAG in its audit report
that DOT showed undue haste in approving the applications of these three
companies through “in-principle” approval and this undue haste was not evident
afterwards as when the Tata Teleservices applied for the use of the dual technology
immediately after the press release on 18th October 2007, LOI was not issued to
Tata Teleservices till January 2008 and further there were two more companies
(Sistema Shyam Teleservices and Etisalat DB Telecom) who were still waiting for
the approval for the use of dual technology till March 2010 (CAG, 2010).

This again shows the irregularities performed by DOT while introducing the use of
dual technology to the existing telecom operators in India. A Level playing field was
denied to other telecom operators who only applied for the use of the dual
technology after the formal announcement of the policy.

3.7 Implementation of Unified Access Services Model:

3.7.1 Gaps in implementation of UAS model:
When TRAI in 2003, submitted its recommendations on Unified Access Services
which envisaged total elimination of service based licensing. Unified Access
Services was an approach towards convergence of access media. Full
implementation of Unified Access Services was to be completed in two phases
(TRAI, 2003). On 31st October 2003 EGOM approved the recommendations
submitted by TRAI in the following manner:

 “a two-stage process; the unified access service for basic and cellular
operators allowing a migration path to existing BSPs and CMSPs in the first
phase to be implemented immediately followed by a second phase of a fully
unified access services licence/authorisation within six months, bringing all
telecom services under one licence, after a process of detailed consultation
by TRAI”.

 “fee paid by the fourth cellular operator to be used as a benchmark for
migration of BSOs to the new unified access services and no fee to be paid by
the existing CMSPs for migrating to unified access services”.

 “the DOT to be authorised to finalise details of implementation of UAS and the
fully unified licence regime with the approval of the Minister of Communication
and Information Technology (MOC&IT) based on its recommendations of
TRAI”.

TRAI in its 27th October 2003 recommendations, proposed three alternatives in
which the migration of existing operators can be done, “the first alternative could be
inviting bids from existing operators as well as from the new prospective UASL
operators. The second alternative could be that basic service operators who are
willing to migrate to the UASL should pay the difference in entry fee of average of 1st
and 2nd cellular operators and entry fee paid by the BSPs. The third alternative is
that the existing entry fee of the fourth cellular operator would be the entry fee in the

new UASL. BSPs would pay the difference of the fourth CMSPs existing entry fee
and the entry fee paid by them” (Para 7.16 – 7.18, TRAI, 2003). TRAI finally
recommended the third alternative which suggested migration of existing BSPs by
charging an entry fee determined through a bidding process in 2001 for the fourth
CMSPs and no fee from the existing CMSPs, TRAI justified this choice on the
grounds of a likely delay in implementation of UAS regime if other two alternatives
are implemented.

But in these recommendations there was no mention of an entry fee to be charged
from the new licensees under the UASL, as TRAI did not recommended entry of new
operators in the first phase of UASL which was only intended for the migration of
existing BSPs and CMSPs. TRAI only recommended the entry of new operators
through UASL only in the fully implemented UASL. TRAI in its recommendations also
suggested that “taking cognizance of spectrum availability, TRAI is in favour of
introducing more competition. However, we feel that in lieu of more cellular operators
it would be more appropriate to have competition in UASL which will be initiated only
after the implementation of the first phase of UASL” (Para 7.37, TRAI, 2003).

Therefore the stipulation of the DOT to benchmark entry fee in respect of new
licences also at the same level which was only allowed for migration of existing
BSPs was not consistent with the recommendations submitted by TRAI in 2003. One
of the most important objectives of 2003 UASL policy was to de-link the spectrum
from licence and to encourage its efficient use by rational allocation procedure and
pricing and the first step to achieve this was to migrate existing licensees. And under
the fully implemented UASL it was envisaged that the licence fee would be nominal
and then the service provider can choose what services they want to provide and
obtain the spectrum accordingly, but this was the second step in the 2003 UASL
policy and TRAI was yet to give recommendations on this. This shows that TRAI‟s
recommendations were not fully implemented by DOT, which meant the most
important objective of the 2003 UASL policy remained unachieved.


3.8 Acts of corruption:
All definitions of corruption include political corruption. “Government for Sale” is the
phrase used to describe corruption where government property or services are
privatised (Eicher, 2005). Corruption is defined by the World Bank (2005) similarly,
as “the extent to which public power is exercised for private gain, including petty and
grand form of corruption, as well as ‘capture’ of the state by elites and private
interests”. In particular to this research, the public corruption is most relevant, as
described by Eicher (2005), “public corruption could occur when a member of the
tax-paying public is given poor service or asked to pay a bribe by one who is
engaged in public service: a judge, a policeman, a civil servant, etc”. Further in
relation to this dissertation, corporate corruption occurs as well, Eicher (2005),
describes “corporate corruption generally takes two forms: engaging in bribe-making,
usually as a supplier of bribes, and violations of ethical and professional standards
with the intent to deceive or defraud investors. With respect to bribes, corporate
corruption could consist of a representative of the firm receiving bribes, either to
another party or to a representative of a domestic or foreign government”. This is
what happened in the case of second generation spectrum allocation, as certain
companies were awarded UASL who were firstly ineligible to apply for UASL and
secondly they were privy to certain confidential information like dates of issue of
LOIs which gave them enough time to get necessary documents and Financial Bank
Guarantees (FBG) required to comply with the LOI requirements to get the UASL.
This clearly shows that the officials of DOT and MOC & IT were involved in acts of
corruption. Due to these acts of corruption Chief Executive Officer‟s (CEOs) of five
telecom companies, former minister of telecommunications and one more member of
parliament are in custody of Crime Branch of India, by order of Supreme Court of
India (PTI, 2011).


4.0 Research Design and Methodology:

4.1 Introduction:
The purpose of this research was to investigate the irregularities performed by Indian
Department of Telecommunication (DOT) in allocation of second generation telecom
licences in 2008.

Methodology is very important to any research project. This is based on its role in
explaining the process of conducting the research. The methodology provides a vivid
analysis of how the research was conducted and makes the result derived from the
research viable and makes the study to be readily accepted in the field of study. In a
nutshell methodology answers these two questions which are how the data was
collected and how the data was analysed.

4.2 Research Approach: Selection and Justification of Methods
Used:
The epistemological stance used is interpretivism. This is used when “the social
world of business and management is far too complex to lend itself to theorising by
definite ‘laws’ in the same way as physical science”. (Saunders, Lewis and Thornhill,
2003, p.102). An argument for interpretivism is presented by Remenyi et at. (1998,
p.35) he explains that you need to know “the details of the situation to understand
the reality or perhaps a reality working behind them”. This stance is most suitable for
the research undertaken for this dissertation, as knowledge of the facts and reality is
crucial before any analysis could take place. As there are many influencing factors
on relationships between DOT, TRAI and telecom operators and the facts known
about this research topic are in the public domain.

The research approach chosen is inductive, this is where you “collect data and
develop theory as a result of you data analysis” (Saunders et al, 2003, p.105).
Induction approach has been chosen over deduction, due to the deductive approach
having a tendency to “construct a rigid methodology that does not permit alternative
explanations of what is going on”. (Saunders et al, 2003, p.104). The research
undertaken for this dissertation needs to allow for alternative explanations to draw

valid conclusions and recommendations. Working with a strict methodology would
not allow some issues to come to light, which would be detrimental to the research
and the outcome of any recommendations made.

According to Robson (1993) there are three traditional research strategies;
experiment, survey and case study. An experiment according to Saunders et al,
(2003, p.109) “owes much to the natural sciences, whereas the survey strategy is
usually associated with the deductive approach”.

For this dissertation the strategy selected is case study, as the research is
conducted around one particular incident of allocation of second generation telecom
licences in 2008. According to Robson (1993, p.40) “a case study strategy is the
development of detailed, intensive knowledge about a single case or a small number
of cases”.

According (Ghuari, P., Gronhaug, K. and Kistianslund, I. 1995, p.57) there are three
main research methods most suited to business research interviews,
questionnaires/surveys and observations. Observations require the monitoring of a
specific group‟s behaviour in certain situations. This was unsuitable for the research
undertaken for this dissertation as the sample was spread over four locations (News
agency offices in New Delhi, Civil Servants in Central Secretariat in New Delhi,
Members of Parliament in Parliament house and the General Public which is spread
across the suburbs of New Delhi), and therefore impossible for the researcher to be
at several places at once. As a result questionnaires were the most appropriate
method of data collection.

4.3 Case Study Approach:
The research strategy chosen to answer the research objectives is a longitudinal
case study approach. (Saunders et al, 2003, p.114) describes a case study as
“research strategy that involves the empirical investigation of a particular
contemporary phenomenon within its real-life context using multiple sources of
evidence”. Saunders (2003) also states that case study approach allows the
opportunity to generate answers to the questions, Why? What? And How? These
questions are vital, as you have to be able to understand the situation before you


can analyse and produce recommendations for improvement. This is further echoed
by Jankowicz (2000, p.48) as he states that the case study approach “explores
issues in the past and present and effect the situation and consequently enables you
to look the future by means of the recommendations made”. Therefore using a case
study approach for this dissertation will enable a position from which the researcher
can draw conclusion on irregularities performed by DOT and the policy lapses that
occurred since the implementation of UASL 2003 and the issuance of telecom
licences in 2008, thus resulting in correlations being drawn between the two.

Taking into the time horizons, a longitudinal study has been selected. Saunders et al,
2003, p.114) states that the “the main strength of longitudinal research is the
capacity that it has to study change and development”. The questionnaires were
undertaken whilst when researcher visited India (31st August 2011 – 14th
September 2011).

4.4 Sampling:
The main research took place in New Delhi, India, using questionnaires.
Questionnaires were carried out in a phased manner firstly, journalists form news
agencies in India who reported and commented on second generation telecom
scam, in second phase, civil servants who are directly attached to the government
departments like DOT, TRAI, Ministry of Finance India (MFI) and Ministry of
Communications and Information Technology (MOC&IT), in third phase members of
parliament were approached who have been in the cabinet during May 2005 – May
2010 and in the fourth phase the general public was approached who have
knowledge about this topic and who felt their country was robbed by the corrupt
politicians and all of these samples were firstly approached directly and the ones
who could not be approached directly were emailed the copy of questionnaire with
covering letter explaining why this research is being carried out.

In total 180 questionnaires were carried out fifty to news journalists, fifty to civil
servants, fifty to member of parliaments and thirty to general public. This data
collection technique was chosen because it allowed the researcher to break down
the population into four groups before a random selection was carried out. This gave


whoever wants to participate in the questionnaire, an equal chance of being selected
and helped to eliminate the bias in the selection process.

4.5 Questionnaires:
Questionnaire are useful when using the survey strategy, however, it is also
recognised as being useful when adopting a case study approach. Saunders et al,
2003, p.298) cites de Vaus (2002) as defining the questionnaire as “all techniques of
data collection in which each person is asked to respond to the same set of
questions in a predetermined order”. The major problem associated is that of
subjectivity and ambiguity of respondents. This was emphasised by Bell (1992, p.60)
who said “words that have a common meaning to you mean something different to
other people” therefore questions must be constructed effectively and free from
ambiguity. Robson (1995, p.243) reinforced this by stating “the construction of the
questions must be carefully considered to ensure that they provide answers to the
research questions being asked”. One way to ensure reduced ambiguity is to pilot
the questionnaire.

An introductory letter was e-mailed out to the questionnaire sample to introduce the
author and explain why this research is being conducted; this e-mail also included
the questionnaire (appendix six). The questionnaire was designed using a format
which had three options for all close ended questions, which hopefully encouraged
respondents to think about the questions before they answered them, as they were
forced to make a decision. By using this technique, the collection of data on opinions
and beliefs of the respondents were analysed to the extent they agree or disagree
with a statement. This enabled the researcher to obtain qualitative data from the
sample while still keeping the results numerical for ease of comparison.

The questionnaire was designed to collect opinions and beliefs as the results helped
to evaluate to what extent particular issues are a problem thus recommending
appropriate solutions. The questionnaire consisted of four general information
questions like name, age, e-mail address and what part of civil society do they
belong to and all of these questions were optional and ten close ended which were
mandatory and crucial to the success of the primary research for this dissertation.


The completed questionnaires were e-mailed back by the respondents and plus the
completed physical copies of questionnaires were also received as soon as they
were filled out by the respondent as the researcher was present at the site. The total
responses received were 97 compared to the initial target of 180 the total response
rate was (53.89%).

4.6 Methodology Reviewed:
The case study method through questionnaire was appropriate for this scale of
research. However, observations may have led to a greater insight into this research,
but they also tend to lead to a larger Hawthorne effect which is a tendency for
“people being observed as part of a research, to behave differently that they would
otherwise” Buchanan and Huczynski (1997, p.183). While carrying out the
questionnaires an independent stance was achieved by explaining to the
respondents that this research was carried for a post-graduate degree, and not
directly linked to the investigations carried out by the Crime Branch of India (CBI)
through an introductory covering letter.

4.7 Technical and Ethical Issues:

4.7.1 Technical Issues:
The questionnaires were first pilot tested which highlighted issues regarding flow,
ambiguities and general ease of understanding. The pilot sample was a group of
professionals in India which were personally known by the researcher as they would
all approach the questions from different stances. A factor that could distort the
responses could be fear of negative comments, having a detrimental effect on
positions of the respondents if relayed back to a point of authority. This issue was
reduced through participants being reassured that responses given would be kept
confidential and no outside party would have any access to the primary data
collected.

The potential problem that could have come up with the primary data collection was
that not many members of civil society in UK are informed or at least have a direct
interest in the topic of this dissertation. In order to overcome this major problem the


interviewer-administered questionnaire were specifically designed for sample in India
who had the knowledge about the topic of this dissertation.

4.7.2 Ethical issues:
Ethical considerations were given throughout the study with regard to access,
confidentiality and consent. Due to the sensitive nature of this research, none of the
personal details were asked while carrying out the primary research and the
respondents were encouraged to leave the personal details field blank in the
questionnaires if they wished to.

4.8 Secondary Research:
During the search for the literature, the researcher concluded that due to the
dynamic nature of this dissertation topic and the constantly changing nature of
telecommunication sector in India, there is not a huge amount of literature which is
available in textbooks but textbooks can be used to get key models which can be
used throughout the dissertation. Therefore the research for the literature is primarily
focused on online articles published by news agencies in India, industry reports
published by TRAI, electronic library databases like Business Source Premier,
Emerald Insight Science Direct and Google Scholar, these databases helped the
researcher to collect academic journal articles, reports and business articles from
sources like Harvard Business Review and The Economist related to the
telecommunication policies in India and other big telecom markets like UK, China,
Canada, Australia and United States.

While browsing and checking the quality and authenticity of the content available the
researcher has specifically searched terms like telecommunication policy in India,
wireless spectrum allocation, spectrum allocation process, second generation
spectrum allocation scam in India, 3G spectrum allocation in India, 3G
spectrum allocation in UK and United States. The combined result yield from
these sources mentioned above is in the range of thirty five to fifty five, these results
include online news articles, journal articles, industry reports and articles in business
magazines like Business Today (India), Outlook (India), Harvard Business Review
and The Economist.


The secondary research is collected through mainly three sources: academic
journals, news reports and audit reports published by government agencies in India.
The reason for choosing this approach is to make sure that the bias if any that arises
from any of the above sources can be kept to minimum and also to present a wide
picture of the evidence available rather than solely relying on a single source which
leaves the window open for the bias of one author.


5.0 Results and Findings:
This chapter will analyse the results of the primary data collected through the
questionnaire as described in the research methodology. The structure of data will
follow the layout of the questionnaire (appendix five). Raw data collected through the
primary research is presented in tables (appendix seven).

Sample age group:

As far as the age group is concerned the majority of the respondents were aged
above fifty around 34%, followed by respondents who were aged between forty to
forty nine around 32%, 22% of respondents were aged between thirty to thirty nine
and the last 12% of the respondents were aged between twenty to twenty nine. So
here it can be clearly seen that majority of the respondents were quite mature and it
can be presumed that their responses would have more credibility. Figure below
represents the responses graphically.

Q – 1 What part of civil society do you belong to?

This question asked the respondents to identify thier proffession.Out of the total
replies recieved for the questionnaire, 26% of the respondents were News
Jounalists, Civil Servants and General Public makes up a figure of 25% each and in
last 24% of the respondents were Members of Parliamnet. This yields a total
response rate of (97/180*100 = 53.89%). Figure below represents the responses
graphically.


Q – 2 Are you aware of the recent second generation telecom spectrum scam
in India?

This question asked the repondents to identify if they were aware of the topic of this
research (“Irregularities performed by the Indian Department of Telecommunications
in allocation of second generation telecom licences in 2008”), by asking this question
the researcher of this dissertation was able to filter out the responses that were not
relavent to this dissertation and if they would have been included then they would
have jeopradised the findings and the conclusion of this research. So out of the total
replies recieved around 97% respondents said that they were aware of the recent
second generation telecom spectrum scam in India and around 3% of the
respondents said that they were not aware of this topic and as a result these
responses were not used as they were irrelavant to this research. Figure below
represents the responses graphically.


Q – 3 How did you hear about the second generation telecom spectrum scam
in India?

This question asked the respondents through what medium did they learned about
the second generation telecom spectrum scam. Out of the total replies recieved
around 46% of the respondents said they came to know about the telecom scam
through other reports, around 29% of the respondents said that they came to know
about the telecom scam through the television news reports, followed by 22% of
respondents who said that they came to know about the telecom scam through
newspaper reports and lastly around 3% of the respondents said that they came to
know about the telecom scam through the magazine reports. Most of these 46%
respondents are Memebers of Parliament and Civil Servants who have access to
internal reports in comparision to News Jouranlists and General Public who rely on
the reports availaible in public domain. Figure below represents the responses
graphically.

Q – 4 In your opinion do you think that the reports that you have been reading
and watching provide unbiased information on the second generation
spectrum scam in India?

This question asked the respondents if they think that the reports they have been
reading regarding the telecom scam provided the unbiased information. Out of the
total replies recieved around 62% of the respondents said yes, around 27% of the
respondents said that they can‟t say if the reports they have read are biased or not
biased, and in last around 11% of the respondents said that the reports read by them


regarding the telecom scam are biased and they do not represent the real facts.
Figure below represents the responses graphically.

Q – 5 In your opinion do you think that Department of Telecommunications
(DOT) carried out the allocation of 2G specrum to mobile network companies
in a fair and transparent manner?

This question asked the respondents if they think that DOT allocated the 2G
spectrum licences fairly and showed transpareny in the allocation process. Out of the
total replies recieved, around 65% of the respondents said that the allocation
process was neither fair or transparent, around 23% respondents said that the
allocation process was both fair and transparent and lastly around 12% of the
respondents said that they can‟t say yes or no regarding the nature of allocation
process being fair and transparent. If these responses are related to literature
review – section 3.6 – procedures adopted in issuances of UASL and allotment
of spectrum, it is quite clear that both primary and secondary research suggest that
DOT did not allocate the 2G spectrum to mobile network companies in a fair and
transparent manner. Figure below represents the responses graphically.


Q – 6 Do you think that the loss caused due to the inefficient allocation of 2G
spectrum was solely down to the Department of Telecommunications (DOT)?

This question asked the respondents if they think that the loss caused due to the
inefficient allocation of 2G spectrum was solely down to the DOT. Out of the total
replies received around 60% of the respondents said that they don‟t think that it was
all down to DOT and there were other government agencies that were involved in
this, followed by 26% of the respondents which said it was only solely DOT who was
responsible for the loss and other government agencies had nothing to do with this
and lastly 14% of the respondents said that they can‟t say if the loss was solely down
to DOT or there were some other government agencies who were also responsible
for this loss. If these responses are related to the literature review – section 3.5 –
financial impact of second generation scam in India, it is quite clear that both
primary and secondary research suggest it was not solely down to DOT and there
were other government agencies that contributed to the financial loss which
amounted to £19.39 billion. Figure below represents the responses graphically.


Q – 7 Do you think that Department of Telecommunications (DOT)
implemented the 2003 UASL policy effectively and efficiently?

This question asked the respondents if they think that DOT implemneted the 2003
UASL effectively and efficiently. Out of the total replies recvieved around 70% of
responednts said that DOT failed to implement the 2003 UASL policy, followed by
18% of the respondents who said that DOT did implement 2003 UASL policy
successfuly and lastly 12% of the respondents said that can‟t say yes or no if DOT
implemented 2003 UASL policy efficiciently and effectively. If these responses are
related to literature review – section 3.7 – implementation of Unified Access
Services Model, it is quite clear from both primary and secondary research that
DOT failed to implemnt the 2003 UASL policy as it was recommended by TRAI and
as it was approved by EGOM. Figure below represents the responses graphically.

Q – 8 Do you think that Department of Telecommunications (DOT) and Minister
of Communications and IT (MOC & IT) were involved in the acts of corruption?

This question asked the respondents if they think that DOT and MOC & IT were
involved in the acts of corruption. Out of the total replies recieved around 82% of the
respondents said that they believe strongly that both DOT and MOC & IT were
heavly involved in acts of corruption, followed by 12% of the respondents who said
that both DOT and MOC & IT were not engagged in acts of corruption and this 2G
spectrum scam is a conspiracy and lastly 6% of the respondents said that they can‟t
say yes or no if both DOT and MOC & IT were engagged in acts of corruption. If
these responses are related to the literature review – section 3.6.2 Multiple


activities on 10th January 2008, 3.6.3 Three applicants provided pre-dated
bankers drafts and 3.8 Acts of Corruption, it is quite clear from both the primary
and secondary research that both DOT and MOC & IT were engagged in acts of
corruption and also favoured few companies which were technically ineligible to
obtain any telecom licences. Figure below represents the responses graphically.

Q – 9 In your opinion do you think that Government of India is doing enough to
get into bottom of these irregularities performed by Department of
Telecommunications (DOT), Minister of Communications and IT (MOC & IT)
and the companies which were issued UASL in 2008?

This question asked the respondents if they think that Goverment of India is doing
enough to get into to the bottom the irregularities perfomed by DOT, MOC & IT and
also if the Government of India is taking appropriate actions against the companies
which got UASL in 2008 illegally. Out of the total replies recieved around 47% of the
respondents said yes, followed by around 30% of the respondents said that they
can‟t say yes or no if the government is doing enough to get into bottom of these
irregularities and lastly 23% of the respondents said that goverment is not doing
enough. If we relate these reponses to the literature review section – 3.4.2 India
third generation spectrum auctions and 3.8 Acts of Corruption, it is quite clear
from both primary and secondary research that government is taking sufficient
actions against the culprits. Figure below represents the responses graphically.


Q – 10 Do you think that Government of India would take appropriate actions
against the culprits and would introduce stringent and transparent telecom
policies in future to prevent these events happening again?

This question asked the respondents if they think that Goverment of India would
introduce stringent and transparent telecom policies in future to prevent these events
happening again. Out of the total replies recieved around 51% of the respondents
said yes, followed by 38% of the respondents who said that they can‟t say yes or no
if the government of India would inroduce stringent and transparent policies to prvent
this happening again and lastly 11% of the respondents said that they don‟t think that
government of India would introduce stringent and trasnparent polices to prevent this
happening again. If we relate these responses to the literature review section –
3.4.2 India third generation spectrum auction, it is quite clear from both primary
and secondary research that Goverment of India has taken and would in future take
steps to prevent these events happening again. Figure below represents the
responses graphically.


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