Tuesday, May 21, 2013

Telecom Cartel Killed Spectrum Auctions: CAG

The national auditor has alleged that telcos acted as a cartel in the recently concluded spectrum auctions and accused the government of wittingly or unwittingly aiding and abetting mobile phone companies by not acting against them. This is the second instance the Comptroller and Auditor General (CAG) has raised the red flag over the government’s spectrum policy, the first being in 2010, when it indicted the UPA government and former communications minister A Raja for causing a loss of up to . 177,000 crore by selling airwaves at a fraction of their original value.

CAG, in an April 9 communication to the telecom department, said cartelisation by telcos in the last two auctions had resulted in spectrum valued at thousands of crores being wasted. It also contended the failed auctions had led to the government losing out on funds. The national auditor’s intervention may create fresh controversy for the beleaguered UPA government as well as the troubled telecom sector. The absence of all major operators in both rounds of the auctions had led to speculation they had collectively decided to not participate, but this is the first time that an official body has directly accused them of cartelisation.

The spectrum sales were held after the Supreme Court last year quashed all mobile permits issued by Raja in 2008 and directed the government to issue new licences through auction. The first round of sales in November 2012 evoked a tepid response with the Centre garnering just . 9,407 crore from 2G spectrum bids, less than a quarter of what it expected. Close to 60% of the airwaves remained unsold. In addition, the government was forced to cancel the sale of CDMA airwaves, as there were no bidders for these frequencies. Despite reducing the base price, the government’s attempt to sell the unsold GSM spectrum in the second round in March ended in a failure after all companies pulled out of the sale process.

Sistema Shyam, the sole bidder in the sale process, bought 40% of the CDMA airwaves on offer at the base price. According to an internal note of the telecom department, CAG has based its charges on the fact that mobile phone companies had been demanding additional spectrum for years and had repeatedly said supplementary airwaves were necessary to meet Trai-prescribed service quality standards. Before the recent auctions, the Centre has not awarded 2G airwaves, largely used for voice services for over four years, and telcos had blamed the lack of spectrum for call drops, poor reception, slow data speeds for basic services among others. Subscriber Nos Questioned

But by failing to take part in the auctions and secure airwaves, telcos have negated their earlier position, the auditor said. It also pointed out that incumbent companies were catering to several times their earlier subscribers despite not getting any additional airwaves for several years. This has also led to the auditor questioning the credibility of the customer numbers reported by mobile phone companies and also the authenticity of the quality of services audits undertaken by Trai. CAG said if the government had enforced prescribed quality standards for mobile services set by the telecom department and Trai, it could have forced mobile phone companies to buy airwaves in the recent auctions. The government’s failure to act had emboldened telcos to demand further reduction in the base price in future auctions, it said.

Prior to the recent auctions, India had a followed a controversial practice of allocating spectrum based on companies’ customer base, and was the only country in the world that subscribed to this method. According to these norms, most mobile phone companies had been eligible for additional spectrum since 2008. At the same time, CAG pointed out that mobile phone companies may have been able to cater to rapid increase in their customer numbers without additional airwaves by using extremely efficient technologies, increasing the number of towers, or compromising the quality of their services. It has also said operators may not have required additional airwaves as they may have been inflating their customer numbers. The national auditor also acknowledged that telcos could be using their 3G spectrum secured in the 2010 sale process to offer voice services, enabling them to skip the recent auctions.

The telecom department’s internal note adds that CAG had sent 20 ‘inspection memos pertaining to Bharti Airtel, Vodafone and Idea’ on these issues and adds that the department was preparing replies for the same. The national auditor also used the example of Delhi to explain its position and pointed out that one operator had been catering to 91 lakh customers with 10 MHz in the Capital while another was offering services to just 26 lakh users with 12.4 MHz of spectrum and yet another was servicing 28.51 lakh subscribers with 4.4 MHz.

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