INVESTIGATION 2G Scam ANATOMY OF A The behind-the-scenes story of how former telecom minister A. Raja manipulated government rules to rob the exchequer. BY KUSHAN MITRA anuary 10, 2008, was not an Nahata, Chairman of HFCL, tried to sumptive” `176,000 crore loss to the exceptionally wintry day in gatecrash the reception area and was national exchequer — an amount New Delhi. As usual, the fog escorted out by a security guard. that would have nearly erased the BARAN had set in, delaying trains and Those in the raucous queue, borrowings of the Central govern- J ` planes. Much of the southern most clutching 1,651 crore worth ment in 2007-08. RAJAT part of the city was a gigantic con- of bank drafts, were putting in The CAG did not say as much but struction zone for the 2010 applications for new mobile phone the message was clear: the manner Commonwealth Games. Morning FM service licences with a promise of in which the Telecom Minister radio broadcasts had angry calls wireless spectrum that came virtu- Andimuthu Raja and Siddharth from commuters stuck in traffic. ally free. (See Why the 2G Rush?) Behura, Telecom Secretary and Inside Sanchar Bhawan in central Those ahead in line had a better the Chairman of the Telecom Delhi, housing the head office of the chance of entering a market of Commission, had issued the licences Department of Telecommunications, nearly 500 million phone customers. was not above board. Both Raja and or DOT, there was chaos of a different The afternoon was to make the Behura are the subject of an investi- kind. A scrappy queue that afternoon headlines nearly three years later. On gation by the Central Bureau of on the ground floor of the 13-storey November 10, 2010, the Comptroller Investigation, or CBI, as are other building got so unruly that one person and Auditor General, or CAG, released government officials from the time fell down face first ending up with cut a report saying the chaotic events at and some of India’s top businessmen, lips and a bloody mouth. Mahendra the DOT office that day caused a “pre- including Anil Ambani and Prashant 1001011110100101011001101101011994101110110101001 001995110011 01101101101101010110110011011011011011101199710110110011 011011011 01101119991101101101101010110110011011011101011011010110 The National Telecom Policy 1994 is CMTS licences are auctioned for non-metro The Telecom Regulatory Authority of India When the National Democratic Alliance comes A History announced, setting the stage for cellular circles. All the winners, including those who is formed as an independent regulatory body to power, mobile operators owe the government a of Flips mobile telephony service, or CMTS. It says won the metros, bring in foreign partners, since to oversee the telecom sector and resolve cumulative `3,500 crore as licence fee. Jagmohan, and Flops the private sector will play a role, the govern- Sukh Ram 26 per cent foreign direct investment is allowed disputes. Between 1997 and 1999, several Beni Prasad Verma then Telecom Minister, wants them to pay up. He ment will get an annual licence fee. Licences in CMTS. Telecom Italia, Swisscom, Telstra, foreign investors move out because of ‘unfriendly is replaced by Ram Vilas Paswan, who steers the to set up mobile services in four metros awarded, British Telecom, France Telecom and AT&T buy policies’ although some operators did get additional spectrum New Telecom Policy 1999, which sparks explo- under minister Sukh Ram. stakes in Indian firms. in several circles. Beni Prasad Verma is Telecom Minister. sive growth, but also creates problems. Jagmohan 112 BUSINESS TODAY March 20 2011 March 20 2011 BUSINESS TODAY 113 INVESTIGATION 2G Scam Ruia. Raja is in jail. This elicited a sharp response Firms that won the licences they from Raja on December 4. His noting staked for in January 2008 were like on file, reproduced in a report pre- winners of a lottery. Realty firm pared by Justice Shivraj Patil tasked to Unitech sold a 67.25 per cent stake probe the controversy, read: “These in its unit Unitech Wireless, a new type of continuous confusions ob- licensee, to Telenor of Norway for served on the file whoever be the of- `6,120 crore, valuing its own 32.75 ficer concerned does not show any per cent stake at `2,980 crore. DB legitimacy and integrity but only their Realty sold a 40 per cent stake in vested interests... Member(F) should Swan Telecom to Etisalat of United have checked the facts with Sec(T) Arab Emirates for `4,200 crore. And before putting up the note on the file.” if Raja or DOT say they had no inkling “Sec(T)” was secretary Mathur spectrum would be valued so highly and “Member(F)” Member, Finance, they were ignoring a deal from less Madhavan. than a year before. In February Soon after, Madhavan, an Indian 2007, Hutchison Whampoa had sold Beneficiary Shahid Revenue Service officer known to be its two-thirds stake in its Indian ven- Usman Balwa upright, went on leave and applied ture, Hutch Essar, to Vodafone for for voluntary retirement. Mathur $11.1 billion. retired on December 31, 2007. Telecom rules in India have been use spectrum, the scarce electromag- Behura, who was secretary in the opaque, to be sure. The Indian netic waves used for communication Ministry of Environment and Forests Telegraph Act, 1885, is among the in mobile phones, were not auc- when Raja was in charge of that legislations amended the most — tioned. The rules then — based on a portfolio, took Mathur’s place and over 400 times. And, DOT has among seven-year-old precedent — man- signed off on the controversial the worst records within the govern- dated payment of `1,651 crore to January 10, 2008 decision. ment on interpretation of rules and the government for a pan-India instances of favouritism. So, if licence and 4.4 MHz of spectrum. Great Spectrum Rush Sterling Cellular, run by maverick There were voices against this The beginning of the scramble for Chennai billionaire C. Sivasankaran, ‘regulatory arbitrage’. The Telecom telecom licences was signalled four lost out on the right to run mobile Regulatory Authority of India, the months after Raja became telecom phone networks in two of the four Finance Ministry, the Law Ministry minister. On September 24, 2007, metros in licences issued in 1994, it and even Prime Minister Manmohan DOT issued a press release stating that was the turn of the powerful Singh had advocated the auctioning applications for new licences Reliance Industries, India’s biggest of spectrum for the new licences. But offering second generation services private company, to muscle into mo- Raja looked the other way, insisting would be accepted until October 1, bile telephony in 2001. he was playing by the rule book. The 2007. A rush of applications fol- Still, the scale of what is today most stark of these brush-offs was lowed and 575 were received. But in commonly called the Raja scam is made within Sanchar Bhawan. the 100-odd days between October 1 mind-boggling. This is the inside Telecom Commission’s Member, and January 10, telecom policy was story: Finance, Manju Madhavan had sent about to be upended. Back to January 2008. There is a note on November 30, 2007 on October 19: DOT said there was no clarity on how the new licences how the price for spectrum was going to be no cap on the number of were issued. At the centre of the abnormally low. D.S. Mathur, then Unified Access Service Licence, or controversy was why the rights to Telecom Secretary, supported her view. UASL, holders in any of India’s 22 tel- 10010111110112001-04101110110110110110101011011011010101101100110110 1101101110110110011011011101 Three telecom ministers go then led by Mukesh Ambani, made Operators Association Licence, or UASL, norms. through the ministry in this period its way into cellular services. It of India, or COAI. No Reliance and Tata Teleserv- — Paswan is replaced by Pramod used the spectrum allotted to it judgment was delivered ices both applied for UASL, Mahajan in 2001, who is replaced for last-mile connectivity using in these cases. Instead, a Arun Shourie despite the fact that Tata was by Arun Shourie in Wireless Local Loop-Mobile settlement was reached between a shareholder in Birla-Tata- 2003. This was the (WLL-M) to offer CDMA-based the operators when, in 2003, then AT&T GSM operator. The Tata time that Reliance mobile services. Several legal Telecom Secretary Pradip Baijal group later sold its holding Communications, cases were filed by the Cellular drafted the Unified Access Service to AV Birla group. Pramod Mahajan 114 BUSINESS TODAY March 20 2011 INVESTIGATION 2G Scam ecom service areas, also known as WHY THE Raja again dug in his heels. On The applicants had 45 minutes to also offer GSM services. circles. UASL is a single licence that al- November 2, he opined that the view get a bank draft issued. As Mahesh THE SCALE OF c) Swan Telecom, an unheard of lows companies to offer fixed-line, ((( 2G RUSH? ))) of the Law Ministry was out of con- Uppal, Director of telecom consul- WHAT IS TODAY entity until then, but whose director cellular phone, Internet access serv- text and the ‘First Come, First tancy Com First, says: “This amount COMMON LY Shahid Usman Balwa is under arrest ices, satellite data services, among Less than 10 per cent of mobile Served’, or FCFS, policy used until of money is hardly something people in the current CBI investigations. News several other telecom offerings. phone customers — mostly with then would stay in place and that the keep ready. There had always been CALLED THE reports quoting unnamed sources link Importantly, the same day, DOT legal- firms such as Bharti Airtel and 121 approved applications received speculation that Raja knew people in RAJA SCAM IS Balwa’s DB Realty's roots to Dynamix ised ‘dual-technology’ in mobile te- Vodafone — make 56 per cent of until September 25 would be consid- the real estate sector.