Decoding the telecom scam

Tue, 18 Jan Pre-Open

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Much hullabaloo has been created about the infamous telecom scam. Fingers are being pointed. No one is being spared. The hitherto ethical elite are being dragged down. A war of words has broken out with politicians and industrialists accusing each other. Even the elite journalists have been dragged down.

But what exactly is this scam?

Let's try and understand the background of spectrum to understand the scam better.

In simple terms, spectrum refers to a range of radio frequencies. It is a medium through which voice or data signals can be transmitted. In a country, spectrum is required for wireless communications, defense, radio transmission, etc. The quantity of spectrum available for mobile communication in India is limited and the number of people vying for it is numerous. Therefore, the government has to adopt a judicious process to allocate this available spectrum.

In 2001, the government set an amount of Rs 16.5 bn as a fee for obtaining pan India telecom spectrum. At that time, this amount was considered to be sufficient considering that there were just 4 m telecom subscribers in the country at that time.

Fast forward to 2008. New licenses were to be issued. These licenses were bundled with pan India spectrum. But the circumstances had changed when compared to 2001. The number of subscribers now stood at 350 m. Everyone wanted to participate in the 'spectacular' growth of the telecom industry.

At this juncture, the then telecom minister, decided to take matters in his own hands. He ignored the advice of the telecom regulator, TRAI, as well as that of the Prime Minister. He decided to allocate the precious spectrum at the same price as that of 2001. Reason for this - only Mr. Raja and God would know why he did this. But it caused the government an opportunity loss. The Comptroller and Auditor General has valued this loss at a whopping Rs 1.76 trln.

Furthermore, a 'careful selection process' was chosen to establish the beneficiaries of this spectrum. It was handed out to companies that didn't even qualify for the spectrum. Most of the companies did not even have the balance sheet strength to be able to carry out a nationwide network rollout. Some of them had no prior telecom experience. But these things became irrelevant. Mr. Raja decided to play Santa Claus and literally 'gifted' spectrum to these companies at throwaway prices.

The most interesting aspect of the scam was that the cut-off date for the application for the license was suddenly advanced by a week. And despite the advancement, some companies were ready with the demand drafts for the fees the moment their names were announced as the beneficiaries. In a country where a demand draft for a paltry Rs 100 takes at least an hour, it is interesting that the companies could get drafts for Rs 16.5 bn so quickly. Maybe the banks work at a different time zone for them. Or maybe they knew they would be the beneficiaries even before their names were announced. Only Mr. Raja and the company heads would know the answer to this. But at the moment they all deny of any misgivings.