Indian minister resigns over $38.9 billion 2G spectrum undersell

Indian telecommunications minister Andimuthu Raja has resigned over allegations that he willingly undersold 2G bandwidth at a loss to the Indian government of $38.9 billion.

The Comptroller and Auditor General (CAG) of India presented a 76 page report to the Indian parliament yesterday claiming that the allocation of 2G radio bandwidth had flouted “every canon of financial proprietary, rules and procedures.”

Many of the companies to which bandwidth was allocated by the Department of Telecommunications (DoT) appear to have been totally ineligible to apply, yet were still awarded licences.

“As many as 85 licences out of the 122 new licences issued to 13 companies in 2008 were granted to those companies which did not satisfy the eligibility conditions prescribed by the DoT. All 85 licences were given to companies which did not have the stipulated paid-up capital at the time of application,” the CAG report said.

Of the 13 companies to which licences were granted, it is noted that 12 would never have been granted any at all under the DoT’s own rules dating from 2005, according to the Times of India

This eligibility for Unified Access Services licences included minimum paid-up capital and not holding more than 10 percent shareholding in another licence holder in the same area.

“While 72 licences were given to companies which did not have the stipulated paid up capital at the time of application, 27 licences were issued to companies who failed to satisfy conditions of main object clause in their Memorandum of Association and the share holding pattern declared by one company did not meet the DoT stipulations,” says the CAG report signed by director general of audit R P Singh.

According to The Wall Street Journal the report said that these companies “suppressed facts, disclosed incomplete information and submitted fictitious documents”. It was also noted in the report that the 2G allocation process lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner, with some recipients picking up spectrum at “unbelievably low prices”, before large stakes were sold to foreign companies.

Further outrage has surrounded the decision to bring forward the cut off point for application to September 25 2007 to October 1, meaning that certain companies’ applications were favoured according to the report.

India’s telecoms industry has exploded in the last decade, with mobile phone service subscribers rocketing from four million in 2001 to 300 million in 2008, making the country the second largest market for wireless services in the world, behind China with 670 million users.

However the presentation of the report to the Indian parliament containing accusations of $39 billion of undersold spectrum marks an uneasy period for the telecommunications industry.

There was also uproar in September over the mishandling of 3G spectrum, which led to India’s 3G infrastructure market value shrinking by a third.