2G scam no one talks about: Telcos got twice the spectrum

By Aditi Roy Ghatak and Paranjoy Guha Thakurta

In the first part of our story on the mispricing and misallocation of spectrum since 1994 (read here) , we showed how telecom operators were officially given a certain amount of spectrum, but in reality got twice that amount. What was allotted to companies was a ‘cumulative maximum’ of 4.4 Mhz and 4.5 Mhz for state and the metro circles respectively; what was actually given was double the amount since they were given paired spectrum - 4.4 Mhz for the uplink and a similar amount for the downlink. In this part, we take the story further.

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It would be useful to understand what radio frequency spectrum means and how this valuable asset was given away without any eyebrows being raised. Spectrum refers to the range of electromagnetic radiation that serves as a carrier wireless transmission and without which there can be no mobile telephony or any other form of wireless transmission. It is worth much more than gold today; it is finite; its availability is controlled by the government of each country on the planet; and the assignment of bands (based on technology and geography) is defined by the United Nations body, the International Telecommunication Union (ITU) in consultation with its members consisting of representatives from governments.

India is allotted radio frequency between 9 Khz and 400 Khz. Spectrum is not something that can be wasted nor given away for free.

To understand the phrase ‘cumulative maximum’ - by manipulating which, a gigantic fraud may well have been perpetrated - GSM (Global System for Mobile Communications, originally Groupe Spcial Mobile) mobile technology involves the use of two-way spectrum; half for downlink (tower to handset) and half for uplink (handset to tower). The first set of licences issued in the mid-1990s provided for a cumulative spectrum of 2.25 Mhz (uplink)+ 2.25 Mhz (downlink) in the bands 890-902.5 and 935-947.5 (GSM 900 Mhz band), or a total of 4.5 Mhz (the “cumulative maximum”), see See document 1 here .

This was specified under Clause 20 of the 1994 licence (Document 1) agreement for the metros. One year later, under Clause 20 of the 1995 licensee agreement (20.3) the cumulative maximum was specified as 4.4 Mhz under bands 890-902.5 and 935-947.5 MHz. The term ‘cumulative maximum’ does not leave itself open to different interpretations. It means the maximum that can be permitted, taking everything into consideration. Yet what was eventually offered was between 8.4 Mhz and 8.8 Mhz to the winning bidders.

The fact remains that those who signed the licence agreement, signed for a cumulative maximum of 4.4 Mhz. However, there was a subsequent clarificatory question in the “Tender Documents for Provision of Telephone Service No. 314-7/94-PHC” under the head: “Replies to queries received in terms of Clause 4 of section II, Part I” (not clause 20 under which the cumulative maximum was specified). The replies dealt with the calculation of licence fee using the words “for a cumulative total of 4.4 Mhz + 4.4 Mhz assigned to an operator for GSM standard mobile cellular system…” The calculations are as shown in Document 2 below.

How or when was the language changed? This is what needs to be investigated. Industry sources say that the terms contained in the licence agreement are what matter, and if the agreement was for a cumulative maximum of 4.4 Mhz, that is what should have been given. Remember, those were the days when spectrum came with a licence. That the terms were changed after the agreement was signed is clear and there were other violations, too, as we will show subsequently.

For starters, the significance of the term ‘cumulative maximum’ is what has to be established and, if there was a breach, it would need to dealt with. On the face of it, it would seem that someone was trying to obfuscate issues because today the phrase ‘cumulative maximum’ has been substituted by the 4.4 Mhz (paired) spectrum in an apparent bid to pass off the malfeasance under a changed technical phraseology.

Very senior bureaucrats who spoke to these writers on condition of anonymity insist that the preoccupation with the term ‘cumulative maximum’ phraseology is unnecessary and that spectrum is always paired. The point being made here is that ‘cumulative maximum’ meant pair and not double the amount as was written in the licence agreement.

The licence agreement ( See document 3 here ) issued by the Ministry of Communications, Department of Telecom (WPC, or Wireless Planning & Coordination Wing) dated 26 June 1996, to Reliance Telecom Pvt Ltd, assigning to it frequencies for GSM cellular mobile services in(i) Himachal Pradesh, (ii) Madhya Pradesh, (iii) Orissa, (iv) Bihar, (v) West Bengal, and (vi)Assam, in 800/900 Mhz bands said that “assignment in the following bands can be considered: GSM 800/900 Mhz band: 898.2-902.4 MHzfor MP, Himachal Pradesh”.

To simplify it for the layman: for Madhya Pradesh, Himachal Pradesh, Orissa, Bihar, West Bengal and the North East, the government was considering allocation in the GSM 800/900 Mhz band,898.2-902.4 Mhz uplink (902.4 minus 898.2 MHz = 4.2) and943.2-947.4 Mhz downlink (947.4 minus 943.2 = 4.2), which meant a cumulative of 8.4 Mhz and not a ‘cumulative maximum’ of 4.4 Mhz as was stipulated in the policy.

In the case of Assam, it was897.0-899.8 uplink (899.8 minus 897.0 = 2.8);942.0-944.8 Mhz (downlink) = 2.8; and again901.2-902.4 uplink (901.2 minus 902.4= 1.2 and946.2-947.4 Mhz downlink (947.4 minus946.2 =1.2). Thus a total of2.8 + 1.2 or 4

Mhz paired or 8 Mhz was givenin place of 4.4 Mhz. The concept of a “cumulative maximum’ of 4.4 mega hertz was given a go by.

From when was 8.4 Mhz or more being given away? One has not been able to locate the file (if it does indeed exist).

In a recent deposition before the JPC, former Telecom Secretary Shyamal Ghosh said that it was a practice to allocate additional spectrum since 1996. He told the JPC that since 1996, the DoT had decided that additional spectrum up to 6.2 Mhz could be given “based on justification” - whatever that means. No one quite knows when the first 8.4 Mhz was given, though those in the know of things suspect that it had been given away right from Day One.

Much later, in 2003, when UAS (unified access service) licences were issued, another distinction was slipped in. Initially, a cumulative maximum of up to 4.4 Mhz + 4.4 Mhz shall be allocated in the case of TDMA (time division multiple access)-based systems (@200 Khz per carrier), or a maximum of 2.5 Mhz + 2.5 Mhz shall be allocated in the case of CDMA (code division multiple access)-based systems (@1.25 Mhz per carrier), on a case-by-case basis, subject to availability.

The Justice Shivraj V. Patil report, prepared by a former judge of the Supreme Court, who comprised the one-man committee of enquiry into the appropriateness of procedures followed by DoT in the issuance of licences and allocation of spectrum during the period 2001-2009, confirms under paragraph 2.84 that “each cellular operator was allotted start-up spectrum of up to 4.4 Mz + 4.4 Mhz at the initial stage depending on the requirements at various places. Conditions of the licence agreement between DoT and service providers stipulated a cumulative maximum of 4.4 Mhz + 4.4 Mhz in the 900 Mhz band”.

Given its terms of reference, Justice Patil’s one-man committee was not required to go into what had transpired prior to 2001.

Who were the recipients of this initial largesse? On 31 July 1995, amidst great jubilation, the then West Bengal Chief Minister Jyoti Basu made India’s first cellular phone call to the then Union Telecom Minister Sukh Ram, inaugurating Modi Telstra’s MobileNet service in Kolkata. The company was a joint venture between the Modi Group and Australian telecom giant Telstra, and was one of the eight licensees to provide cellular services.

There were problems galore with the Indian Army still not comfortable with giving up spectrum, hitherto reserved for its own wireless communications. All this was overshadowed by the excitement of India going cellular. The other Kolkata service provider was Usha Martin Telekom that launched its Command service soon after (see Table 1 below).

In Delhi, Bharti Cellular launched Airtel while the other winner of a cellular licence was Sterling Cellular. BPL Mobile and Max Hutchison were the winners for Mumbai while RPG Cellular and Skycell Mobile Telecom were awarded licences for Chennai. Not too long thereafter, both the Kolkata licensees changed hands: the new providers were Bharti and Hutchison (now Vodafone). How much did the operators pay? As little as Rs 1 crore was paid for the Chennai licences. But there was much more waiting for the service providers as the years went by (See Table 2 below).

How was the licence fee calculated? ( See document 4 here ) Paragraph 20.4 in the agreement explained that licence fee and royalty shall have to be paid for grant of licence, which will be subject to revision from time to time. (Note: A sample calculation of the rates of royalty and licence fee for the time being in force is as follows - Royalty: Rs 4,800 x 8 x 22 = Rs 8,44,800 per annum, where 22 is the number of RF (radio frequency) channels of 200 Khz each and 8 is the number of voice equivalent channels per RF carrier; Licence fee: Rs 100 per base station per annum in each cell is liable to be reviewed).

There are two more important sidebars to this whole issue. The big benefit that the early arrivals got was securing spectrum in the 900 Mhz band that is far more efficient, both technically and economically. This was assigned mostly to the first three cellular licensees in most of the service areas. The subsequent licensees were given spectrum in the 1,800 Mhz band only.

To go back to the DoT, it had actually recorded this strange story around breaking the ‘cumulative maximum’ barrier that led to the gifting of more than 35 Mhz of spectrum around 1994-95 (4.4 Mhz extra for each operator in each circle, or 8.8 Mhz per circle multiplied by four circles). The complexities of calculating the value make it quite a formidable exercise because the real value of spectrum (like land) lies in its prospective value, the dexterity with which it had been leveraged to deepen the capital base of its owners that would have been impossible without this extra-constitutional asset.

Some of the original victors have done extremely well for themselves. Airtel, for instance, is the world’s third largest telecom operator with more than 243.336million customers across 20 countries as of March 2012.

The chicanery was convincingly concluded in a note prepared by DoT in November/December 2011, when everything that it did was coming under public scrutiny. The subject was: levy of one-time spectrum acquisition charge for allotment of additional spectrum to 2G service providers. The sub-heading said: “Grant of access services (CMTS, Basic and UAS) licences. Under clause 1.1 it said: “In November 1994, two Cellular Mobile Telephone Services (CMTS) licences were awarded in the four metro cities of Delhi, Mumbai, Kolkata and Chennai based on ‘beauty parade’. Total eight (two each in the four metros) CMTS licences in metros were awarded, licence fees payable over 10 years’ licence period was predetermined by DoT. 4.5 + 4.5 MHz GSM spectrum was assured in 900 Mhz and no upfront charges was (were) to be paid for spectrum. Spectrum usages charges were payable separately at applicable rates”.

Quietly, the DoT had given the concept of cumulative maximum a burial. There was worse to follow. The note further stated that the legal tenability and sustainability of asking for a one-time fee for the spectrum already issued is being questioned.

There is a prima facie case for a thorough investigation. Those who oppose a probe say that there could have been no question of a ‘cumulative maximum’ of 4.4 Mhz because no operator could have rolled out a service on such a meagre allocation of spectrum. Others point out that in those early days, no one imagined such a massive rollout of cellular phone services would take place.

Common sense suggests that if one has taken more than the permitted ‘cumulative maximum’, one has broken the law. The licence agreement in 1995 clearly mentions a ‘cumulative maximum’ of 4.4 Mhz. Clearly, the DoT does not read its own documents. It was only in 2001 that the doubling of the allotted spectrum was regularised in the amended licence agreement. Once again, an investigation is necessitated to find out what exactly happened.

If one breaks the law, one is supposed to be punished. Here in India, even an impartial investigation is proving rather difficult in this Mad Hatter’s Telecom party.

(Tomorrow: How the “cumulative maximum” spectrum norm was breached - and more)