DO. O.

10709/FS/2007 Finance Secretary Department of Economic Affairs Ministry of Finance Government of India New Delhi Tel: 23092611, 23092555, Fax: 230940 Dr. D. SUBBARAO November 22, 2007 Shri D.S. Mathur, Secretary Department of Telecommunications Ministry of Communications and Information Technology, Sanchar Bhavan, New Delhi 1. During the presentation on the Spectrum Policy to the

Cabinet Secretary on 20 November, 2007, you had mentioned among other things, that (i) three CDMA operators were given crossover license for GSM operations (ii) the fee for this license was determined at Rs.1600 crore (for all India operations with prorata determination for less than all India operations), and (iii) that one of the licensee has already paid the license fee. 2. That purpose of this letter is to confirm if proper procedure has been followed with regard to financial diligence. In particular, it is not clear now the rate of Rs.1600 crore, determined as far back as in 2001, has been applied for a license given in 2007 without any indexation, let alone current valuation. Moreover, in view of the financial implications, the Ministry of Finance should have been consulted in the matter before you had finalized the decision. 3. I request you to kindly review the matter and revert to us as early as possible with responses to the above issues. Meanwhile,

all further action to implement the above licenses may please be stayed. Will you also kindly send us copies of the letters of permission given and the date? Yours sincerely, Sd/(D. Subbarao) Copy to: (ii) (i) Shri K.M. Chandrasekhar, Cabinet Secretary,

Rashtrapati Bhavan, New Delhi Shri Rohit Kansal, Private Secretary to Finance Minister, Ministry of Finance, North Block, New Delhi.

Secret Government of India Ministry of Communications & Information Technology Department of Telecommunications Sanchar Bhavan, New Delhi-110 001 D.S. Mathur Secretary D.O. No.20-165/2007-A.S-I Dated: November 29, 2007

Dear Shri Subbarao, Kindly refer to your D.O. letter No.10709/FS/2007 dated 22nd November, 2007 on use of dual technology. As per Cabinet decision dated 31st October, 2003, accepting the recommendations of Group of Ministers (GoM) on Telecom matters, headed by the then Honble Finance Minister, it was inter alia decided that The recommendations of TRAI with regard to implementation of the Unified Access Licensing Regime for basic and cellular services may be accepted. DoT may be authorized to finalize the details of implementation with the approval of the Minister of Communications & IT in this regard including the calculation of the entry fee depending on the date of payment based on the principle given by TRAI in its recommendations. In terms of this Cabinet decision, the amendment to NTP 99 was issued on 11th November 2003 declaring inter alia that for telecommunication services the license for Unified Access (Basic and Cellular) services permitting licensees to provide Basic and/ or

Cellular Service using any technology in a service area shall be issued. The entry fee was finalized for UAS regime in 2003 based on the decision of the Cabinet. It was decided to keep the entry fee for the UAS license the same as the entry fee of the fourth cellular operator, which was based on a bidding process in 2001. The dual technology licenses were licenses were issued based on TRAI recommendations of August, 2007. TRAI in its recommendations dated 28th August, 2007 has not recommended any changes in entry fee/ annual license fee and hence no changes were considered in the existing policy. With regards Yours sincerely, Sd/ (D.S. Mathur) Dr. D.Subbarao Finance Secretary Department of Economic Affairs Ministry of Finance North Block New Delhi 110001

Handwritten note in FS office (May please see at Dak Stage. Our letter is at F/X. No reply as why a matter with financial implications has not been referred to MoF. Will put up on file. Sd/illegible)

MINISTRY OF FINANCE Department of Economic Affairs Subject: Spectrum Policy References: (i) Letter No. 10709/ FS/2007 dated 22.11.2007 from FS to Secretary, Telecom (ii) Reply received from Secretary, Telecom D.O. No .20-165/ 2007-AS-I dated 29.11.2007 FM had instructed that the prolific Press reports over the last two months relating to pricing of spectrum and the "Telecom Wars" may be tracked. 02 . The Press reports relate to a variety of issues. These include:
DoTs decisions on the pending applications for Licenses (for

which a deadline of September 25th October 1st 2007 by DoT);

was declared on

2G and 3G Spectrum: the quantum available, the methods of

allocation and pricing thereof;

DTH and Broadband coverage; TRAI recommendations on the subject at different times on

the above;
Views of Competition Commission on number of players in

Telecom. The common theme underlying all the issues relate to a range of technologies now available under the rubric of Telecom - from telephony, video, television to broadband DTH etc. (In other words, transmission of Voice, Mail, Data and Broadcasting through hand held mobile devices). The radio frequency to be used for the technology is scarce. The media interest in DoT and its decisions is on account of its being the custodian of the radio frequencies

spectrum, responsible for its allocation as well as the Authority to issue licenses to operators in the Telecom sector. 03. A position paper has been prepared on the most contentious

issue that is currently enjoying public attention, i.e. allocation of additional licences and 2G Spectrum to existing and new entrants. The draft of the position paper was discussed with FS and the final draft is enclosed. 04. The full Telecom Commission was scheduled to meet today.

However, the meeting has now been postponed to 15th January 2008. Finance Secretary has desired that I may represent him in the meeting. Sd/(Sindhushree Khullar) Additional Secretary (EA) 09.01.2008 FS FM

Draft (Revised 3.1.2008) DEPARTMENT OF ECONOMIC AFFAIRS Position Paper on Spectrum Policy References: (i) Letter No.10709 / FS/ 2007 dated 22.11.2007 from FS to Secretary, Telecom. (ii) Reply received from Secretary, Telecom - D.O. No.20165/2007-AS-I dated 29.11.2007. (iii) Agenda for the Cabinet dated 31st October 2003 (iv) New Telecom Policy 1999 and amendment dated 11th Nov. 2003. Present Arrangements 01.

The Statutory basis for grant of wireless license: The Indian Telegraph Act, 1885 (ITA, 1885) and rules made

thereunder provide statutory basis for grant of licences by the Central Government for establishment, maintenance or working of wireless apparatus, equipment and appliances.

The Indian Wireless Telegraphy Act, 1933 (IWTA 1933) and

rules made thereunder, provide the Central Government with powers to grant licences for possession of such wireless apparatus, equipment and appliances.

Wireless Planning and Coordination (WPC) Wing of Ministry

of Communications & IT exercises powers of the Central Government for grant of such licences under Section 4 of the ITA, 1885 and Section 5 of IWTA 1933. 1.1 The chronology of Service Licence procedures is at

Annexure-I.

02.

In 2003, the Cabinet decided to allow licensees to provide all

telecom/ telegraphic services using any technology, and also approved an addendum to NTP-99 enabling (i) (ii) Licensees to migrate to Unified Access Service (UAS) License; and Government to issue new UAS Licences. [Under a UAS License, the Licensee can provide wire line and/ or wireless services. The allocation of spectrum, if required, is subject to availability] 3.1 The Cabinet also approved the GoM recommendations on

release of adequate spectrum needed for the growth of the telecom sector. GoM recommended inter alia (1) The Department of Telecom and Ministry of Finance would discuss and finalise spectrum pricing formula, which will include incentive for efficient use of spectrum as well as disincentive for sub-optimal usages. (2) The allotment of additional spectrum be transparent, fair and equitable avoiding monopolistic situation regarding spectrum allotment/ usage. (3) The long term (5/10 years) spectrum requirements along with time frames would also be worked out by Department of Telecom. 3.2 In addition, Cabinet approved, that DoT may be authorized

"to finalise the details of implementation with the approval of the Minister of Communications and IT in this regard, including the calculation of the entry fee depending upon the date of payment, based on the principles given by TRAI in its recommendations". The Agenda Note for the Cabinet dated 31st October 2003 is at Reference (iii) (Encl.)

04.

Currently, Government gets payment/revenue from Unified

Access Service License (UAS) holders of both GSM and CDMA technology under three streams/ routes. (i) Entry Fee fixed on the basis of highest bid received in 2001 auction of licenses (Rs.1651 crore if operating over the entire country corresponding to circle-specific fees). (Entry Fee was fixed on the basis of the highest bid received in the license auction in 2001. There were three rounds of bids in 2001. The highest bid in the first round was used as the reserve price for the second round and the higher price in the second round was used as the reserve price for the third round. The bid was finally closed in the third round. DoT states that this is not in the nature of Spectrum charges or License Fee.) (ii) (a) Spectrum charges fixed at 2%, 3%, 4% of Adjusted Revenue (AGR) depending on the Spectrum Gross

Bandwidth. Separate criteria exist for GSM and CDMA operators. A detailed table indicating the range of spectrum charges and the allocated bandwidth is placed in Annexure II(a). (b) Start up Spectrum allocated as a part of the license (At present initial allotment is in accordance with the relevant provisions of the Service License Agreement. Clauses 43.5(i) and 43.5(ii) of the Service License of up to 4.4 MHz + 4.4 MHz shall be allocated in the case of TDMA based systems @ 200 KHz per carrier or 30 KHz per carrier or a maximum of 2.5 MHz + 2.5 MHz shall be allocated in the case of CDMA base systems @ 1.25 MHz per carrier, on case by case basis subject to availability". linked to subscriber base. (Annexure II(b)).

Additional spectrum beyond the above stipulation may also be considered for allocation after ensuring optimal and efficient utilization of the already allocated spectrum taken into account all types of traffic and guidelines/ criteria prescribed from time to time") (iii) Revenue share as percentage of Adjusted Gross Revenue (AGR) [In 2001 spectrum charges for Cellular/ Basic/ WLL services were changed over to revenue share w.e.f 1.8.1999, the date of implementation of NTP 1999. The license fee is paid as a percentage of Adjusted Gross Revenue (AGR) earned by all operators except for Pure Value Added Service Providers, Voice Mail, E-Mail and Internet Service Providers, as defined in the License Agreement] 4.1 The rates of License Fee (Revenue Share) for Basic/ UASL

and CMTS services inclusive of universal service levy are as under: Category Service Rate of license fee (1.8.99 to 24.1.2001) Rate of license fee* (from 25.1.2001 to A ** Cellular / Basic / B USAL Cellular / Basic / C UASL Cellular / Basic / UASL Provisional license fee as revenue share of 15% of AGR (8% for A&N Islands, and J&K) 8% 6% 10% 8% 30.3.2004) 12% 10% Rate of license fee* (wef 1.4.2004)

Note: * The License Fee includes the contribution for Universal Service Obligation Fund as USL which is 5% of AGR. ** For the first two circle cellular operators (license awarded before 1999) there is an additional relief of 2% for four years w.e.f. 1.4.2004. This is subject to a minimum of equivalent to the contribution for USO Fund and this is 5% of AGR. 05. Policy objectives in fixing Entry Fee, Licence Fee and

Spectrum charges
Making telecom services accessible to all. Efficient allocation of a scarce good (Spectrum) owned by

government
Revenue maximization. The levies are Non-Tax revenues of

government. Options before us 06. 6.1 (?) Review Entry Fee: The entry fee regulates the number of service providers. As of July 2007 there are over 180 licensed Cellular and Unified Access Service providers in 23 telecom service areas. Six to seven million subscribers are being added on an average to the network every month. 159 licenses have been issued for providing Access Services / CMTS / UASL / Basic. The number of service providers in each service area with their market share as on quarter ending June 2007 is in Annexure III. 6.2 TRAI recommendations (August 2007) do not favour a cap to be placed on the number of Access Service providers in any service area. 6.3 Given the fact that there are reportedly over 575 applications pending with DoT (including 45 new applicants) there is a case for reviewing the entry fee fixed in 2001. This is an administratively fixed fee. Therefore any change should be

governed by transparent and objective criteria applicable uniformly to all new entrants. 07. 7.1 (?) Review Revenue share percentages: There has been a persistent demand for reduction of revenue share as percentage of AGR from the Industry Associations. The Departmental Sub-Committee chaired by Member (Finance), DoT recommends that the present revenue share rates on License fee may remain. Revenue implications of revising revenue shares on alternate scenarios are at Annexure IV. 7. 2 Revenue share as a percentage of AGR is a fee for Licence and is linked to the subscriber base. The AGR is part of the normal profits of the operator. The standard argument of the Industry is that an increase in revenue share erodes their margins forcing them to pass on the cost to the subscriber/customer thereby compromising the target of expanding coverage. 7.3 There is strong case for revising the rates of revenue share percentages for both existing Licensees and new entrants because intense competition and aggressive subscriber acquisition by various operators will ensure that tariffs, particularly for pure telephone usage alone will be beaten down. It is a widely known fact that profit margins are mostly on value added services and not on telephone calls. 7.4 The alternative methods of revising the percentage revenue share based on AGR, for Licence Fee to be paid annually, could be: (a) (b) Indexed to growth of the sector; or Auction based on transparent rules. The highest/ second highest bid for percentage of revenue share would be the successful bidder.

08. 8.1

(?) Review Spectrum Charges: The most contentious issue relates to spectrum allocation. There is no disagreement that the price charged for spectrum should be based on its scarcity value, efficient usage and that the process of allocation should be transparent and fair. The payment is for a real economic resource. It is not a fee. According to DoT it is closer to royalty charged on Coal, Crude and Natural Gas.

8.2

Additional spectrum as available has to be allocated to (a) Existing Licensees in GSM; (b) Existing Licensees in CDMA; (c) New applicants for Licenses in GSM; and (d) New applicants for Licenses in CDMA or any combination of the two technologies.

8.4

The most transparent method of allocation of spectrum would be by auction. However, there are two caveats to the auction method. (a) The ways in which the existing licensees in GSM and CDMA would be eligible to participate in the auction visa-vis the new entrants; and (b) The advantages and disadvantages of the method itself. A detailed table is placed at Annexure V. The possible non-optimal outcomes can be taken care of by prescribing suitable rules of auction before the bid in a transparent manner applicable to all eligible bidders. Any other method for allocating spectrum, being a scarce resource, would be economically inefficient.

09. The TRAI recommendations August 2007 suggested a Multidisciplinary committee to be constituted consisting of representatives from DoT/TEC, TRAI, WPC Wing, COAI, and AUSPI to frame new spectrum allocation criteria.

9.1 The efficient usage of spectrum is a technical issue. It is learnt that a Department Committee headed by Additional Secretary (Telecom) has recently given recommendations to DoT on the technical criteria for allocation of spectrum based on TRAI recommendations, 2007. In addition, the TEC has also made recommendations on the technical criteria for allocation of spectrum. However, the details of these recommendations are not available. Nevertheless, regardless of the allocation criteria, auction has been recommended with transparent rules as the most suitable method of allocating spectrum. The quantum, of spectrum available for auction in 2G is to be decided by DoT. 9.2 The quantum available will have to be allocated through the most appropriate method accepted by the Government to existing operators as well as to the new entrants who have applied for the same until the cut off date stipulated by DoT. A decision is yet to be taken by DoT on this issue. 10. The foregoing discussion relates only to 2G spectrum that is the subject matter of recent petitions to MoF and Press Reports (Telecom Wars).

Note on Spectrum Charges The first licenses for cellular mobile telephone services were awarded in 1994 for 8 cellular operators in four metro cities. The operators were bound by a ceiling tariff and call charge, and were required to pay a license fee spread over ten year. The annual payment ranged from a minimum of Rs.1 crore in the first year to Rs.24 crore per year in the seventh year for various metros. More licenses were awarded in 1995 based on a bidding process. The bids were based on license fee spread over a ten year license period but did not include spectrum charges. Charges for spectrum were payable separately and these licensees were charged for spectrum at Rs.4,800 per voice channel and Rs.1200 for each additional station. 2. In the year 1999, NTP-99 was announced. The existing operators (including basis service operators) were permitted to migrate to provide cellular mobile services with effect from 1st August, 1999 on payment of license fee and spectrum charges. At this point of time, the following three charges were levied:(i) (ii) (i) 3. 4. 5. entry fee based on a bidding process; charges for spectrum (at the present rate); revenue sharing (collected as a license fee).

In 2002, licenses were issued to a fourth cellular operator On 27th October, 2003, TRAI recommended that the Cabinet approved the recommendations of the TRAI with

based on bidding for the entry fee.

regard to implementation of the Universal Access Services License regime (for basis and cellular services) and authorized DoT to finalize the details of implementation including the calculation of the entry fee depending on the date of payment based on the principles given by TRAI in its recommendations.

6.

GoM

constituted

for

the

purpose

made

certain

recommendations. Cabinet approved the recommendations on release of adequate spectrum, namely, (i) DoT and MoF would discuss and finalize the pricing formula for spectrum which will include incentive for efficient use of spectrum. (ii) (iii) 7. the allotment of additional spectrum would be transparent, fair and equitable; and the long term (5-10 years) spectrum requirements would be worked out by DoT. It is therefore clear that there are three separate concepts; (i) (ii) (iii) 8. (i) entry fee; charges for spectrum; revenue share. Entry Fee: The present entry fee is based on the

highest bid received in 2001, namely Rs.1,651 crore if operating over the entire country. DoT has taken the stand that entry fee is not in the nature of spectrum charges or license fees. (ii) Charges for spectrum: Currently, spectrum charges are fixed at 2 per cent, 3 per cent or 4 per cent of Adjusted Gross Revenue (AGR) depending upon the spectrum bandwidth. The rate goes up from 2 per cent to 4 per cent as the bandwidth increases from 4.4 MHz start-up spectrum is allocated as part of the license. Initial allotment is up to 4.4 + 4.4 MHz for GSM based systems and upto 2.5 + 2.5 MHz for CDMA based systems. It is also provided that additional spectrum may be considered after ensuring optional and effective utilization of the spectrum allotted. (iii) Revenue Share (also described as license fee): Currently, revenue share is a percentage of AGR, with effect from 1.4.2004 the share is 10 per cent for category A, 8 per cent for category B and 6 per cent for category C.

9.

This note does not deal with the need, if any, to revise entry

fee or the rate of revenue share. This note deals with spectrum charges for 2G spectrum. 10. Spectrum is a scarce resource. The price for spectrum should be based on its scarcity value and efficiency of usage. The most transparent method of allocating spectrum would be through auction. The method of auction will face the least legal challenge, if Government is able to provide sufficient information on availability of spectrum, that would minimize the risks and, consequently, fetch better prices at the auction. The design of the auction should include a reserve price. 11. The auction could be for a one-time payment for the additional spectrum at an annual rent for the additional spectrum. Once the price is discovered, additional spectrum should be allocated to all bidders at that price. 12. In addition, if a licensee sells his license (including the spectrum) to another person, it could be stipulated that the license should share with the Government a part of the 13. This leaves the question about licensees who hold spectrum over and above the start up spectrum. In such cases, the past may be treated as a closed chapter and payments made in the past for additional spectrum (over and above the start up spectrum) may be treated as the charges for spectrum for that period. However, prospectively, licensee should pay for the additional spectrum that they hold, over and above the start-up spectrum, at the price discovered in the auction. This will place old licensees, existing licensee seeking additional spectrum and new licensees on par so far as spectrum charges are concerned. Sd/(P. Chidambaram) Finance Minister 15.1.2008 Prime Minister

Ministry of Finance Department of Economic Affairs Allotment and Pricing of Spectrum 30 January 2008 1. Minister for Communication met the Finance Minister today

on the subject of spectrum charges. Secretary, DoT, Advisor (Wireless) and I were present. The following is the gist of discussion. 2. FM suggested that keeping in view lessons of experience, allotment of licenses and allocation of spectrum must be based on solid legal grounds. 3. It was agreed that the optimum numbers of operators per circle would be about seven. The International norm is about six. If there are more licensees per circle, it is possible that consolidation will take place. Government should ensure that such consolidation happens in a healthy way without any rent-seeking. 4. It was noted that there is a mismatch in the demand and supply of spectrum across circles. Redressing this mismatch will be another policy imperative. 5. 6. FM said that for now we are not seeking to revisit the current The issue under consideration now is the regime for regimes for entry fee or for revenue share. allocation of spectrum. The following aspects need to be studied further: (i) The rules governing the allocation of additional spectrum and the charges thereof, including the charges to be levied for existing operators who have more than their entitled spectrum. (ii) Rules governing trade in spectrum. In particular, how can Government get a share of the premium in the trade? (iii) The estimate of the additional spectrum that may be available for allocation after taking into account: (a) the

entitlement of entry spectrum of fresh licenses: (b) the spectrum that needs to be withdrawn from existing operators who do not have the subscriber base corresponding to the spectrum allotted to them; and (c) the spectrum that may be released by Defence. (iv)We also need to check the current rules and regulations governing withdrawal of spectrum in the event of: (a) not rolling over; (b) merger and acquisition; (c) trading away spectrum. 7. Secretary (DOT) will come for a meeting with us at 12 noon on 31.01.2008 to discuss these issues. Please make it convenient to attend the meeting. Sd/(D. Subbarao) Finance Secretary 30.01.2008 AS(EA)

Discussion between Honble FM and Honble MOC&IT (30th January 2008) Salient points: DOT and MOC&IT best judge how to go about the issue; need to avoid legal issue Initial spectrum linked with service licence. Growth of service should not get stifled. At the same time, spectrum hoarding and trading in spectrum should not be allowed. Additional spectrum should be allotted at proper price; Need to discover right price for spectrum; How to ensure availability of adequate spectrum for new operators as well as for growth of existing operators? In case of Mergers and Acquisitions, Government should get appropriate part of company valuation as premium for spectrum. 2. 2.1 The main issues are discussed below: How to discover the right/appropriate price for additional The best method to get the right/correct/appropriate market price for the spectrum is the Auction. All other methods provide only Administrative pricing of spectrum which can be reviewed periodically based on the experience gained. One method could be to index the bids of 2001 for different areas, with inflation since 2001 as well as the teledensity as prevailing 2001 and now. This amount can be taken as an equivalent of 4.4 MHz of GSM spectrum. Another method of valuation can be based on the population of the area concerned, which provides the potential for total teledensity.

spectrum.

2.2

How to ensure availability of adequate spectrum for new The total spectrum requirement for new operators would

operators? depend on the number of operators in a given service area. As was mentioned during discussion, a practical maximum number of national level operators can be 7-8 with one or two regional players. Of course, the general view of telecom experts is that eventually, only national level, integrated telecom players would stay in the field. Other operators are likely to merge in the main players or get acquired by them. For 7-8 total operators, spectrum can be made available in southern states, MP, Orissa and couple of other areas. In the remaining areas, adequate spectrum can be available for all these 7-8 operators, only after defence closes their tropo links and vacates the relevant spectrum. This also takes into account the needs of existing operators for additional spectrum. 2.3 Withdrawal of excess spectrum: Regarding withdrawal of excess spectrum, all the operators have already been requested to provide the data of their active subscribers (VLR) and traffic. Some of them have provided the data. They can be informed that say after one year, they would be entitled to retain only that much spectrum which is their entitlement as per the criteria, taking into account their VLR and traffic data then, and the balance spectrum would stand withdrawn. For those who have not provided the data, a reminder had already been issued and a final notice can be issued that if the data is not provided within a week, spectrum beyond 6.2 MHz would stand withdrawn with immediate effect. In cases of Merger & Acquisitions, the merged entity can retain the spectrum as per their entitlement based on total VLR

and traffic, say three months after the merger. The remaining spectrum would stand withdrawn thereafter. 2.4 In case of M&A, getting part of the valuation for Government

as premium for spectrum, to avoid hoarding as well as spectrum trading. In view of very large number of new operators, it is expected that some of these companies might have obtained licences as speculative venture. Hence, some Mergers & Acquisitions (M&As) are likely to take place after some time, which de facto, would amount to spectrum trading, as a large part of such companys valuation may be on account of the spectrum held by them. This spectrum trading is not desirable and needs to be regulated. Besides the general conditions in service licence and other guidelines for M&As, clear and detailed Guidelines need to be evolved and announced regarding the M&As, especially the amount of spectrum which the merged entity would be allowed to retain along with criteria and other details in this regard, companys valuation by consultants/valuers appointed with Govt.s approval/concurrence; and then payment of a part of the valuation to Govt., as premium for spectrum, etc.

SIDDHARTHA BEHURA Secretary

Government of India Ministry of Communications & IT Department of Telecommunications Sanchar Bhawan, New Delhi 110 001

DO NO. L-14047/33/2007-NTC(Pt) February 8, 2008 Dear Dr. Rao, This has reference to our meetings regarding issues concerning spectrum charges. As desired, I am enclosing a copy of the Approach Paper in this regard. 2. I have sent a copy of this Approach Paper to Honble

MoC&IT and also discussed with him. He has directed that based on the above, Telecom Commission Meeting may be called at an early date in order to take appropriate decisions. With regards Yours sincerely, Sd/(Siddhartha Behura) Encl: As above Dr. D Subba Rao Finance Secretary Ministry of Finance North Block New Delhi

Approach Paper Department of Telecommunications Sub: Spectrum Charges On the broad issues concerning spectrum charges, four rounds of discussions were held between Secretary Finance and Secretary Telecom. Based on the above discussions an approach paper is presented as under: 2. Spectrum Usage Charges for Initial allotment of spectrum of

4.4 MHz 2.1 Secretary (Finance) was of the opinion that auctioning is

legally possible for initial allotment of spectrum of 4.4 MHz. Secretary (DoT) explained that auction of spectrum of 4.4 MHz though may be legally possible but it would not be practical proposition to auction or fixing a price for 4.4 MHz spectrum due to following: 2.1.1 As per clause 43.5 (i) of UAS License, which provides that: initially a cumulative maximum of upto 4.4 MHz +4.4 MHz shall be allocated in the case of GSM based systems. It implies that when a service provider signs UAS License he understands that and contractually he is eligible for initially a cumulative maximum of 4.4 MHz subject to availability. 2.1.2 under UASL. 2.1.3 As auctioning does not assure the operators to get initial spectrum of 4.4 MHz as per UAS License provision, auctioning and the clause 43.5 (i) of the UASL are contradictory. 2.1.4 If the new entrants get spectrum by auctioning, they may be paying more as compared to the existing players. Hence (a) auction will not ensure level playing; (b) also, as the cost to the 120 LOIs have been issued and the Department is contractually obliged to give them start up spectrum of 4.4 MHz

new entrants would be more, they may not be able to offer competitive tariff. 2.1.5 Also 4.4 MHz is a part of the license agreement; no spectrum acquisition charge is proposed to be levied. Even if it is priced, it will also disturb the level playing field and the present LOI holders, who have already paid entry fee, are likely to go for litigation. Initial entry fee for license may be construed as the defactor price of initial spectrum i.e. Rs.1650 crore approximately for pan-India license. 3. Spectrum Usage Charges for additional spectrum of 1.8 The issue of levying price for additional spectrum of 1.8 MHz beyond 4.4 MHz including auctioning was also discussed. Secretary (Finance) desired to know whether this additional spectrum can be priced/auctioned and if not then why. 3.1 The auction of spectrum of 1.8 MHz beyond 4.4 MHz would

MHz beyond 4.4 MHz.

not be practical due to following: 3.1.1 as per clause 43.5(ii) of UAS License which provided that Additional spectrum beyond the 4.4 MHz may also be considered for allocation after ensuring optimal and efficient utilization of the already allocated spectrum taking into account of all types of traffic and guidelines / prescribed from time to time. However 6.2 + 6.2 MHz in respect of TDMA (GSM) based system shall be allocated to any new Unified Access Services Licensee. 3.1.2 It implies that an operator is eligible for consideration of additional 1.8 MHz spectrum (making total of 6.2 MHz) after ensuring optimal and efficient utilization of the already allocated spectrum taking into account all types of traffic and guidelines / criteria prescribed from time to time.

3.1.3 The matter was internally discussed with the Solicitor General, who opined that he is defending the Government cases in various courts, where one of the main contentions is that auction would lead to reduction of competition and will not help in reducing the tariff and hence it would be against increase of teledensity and affordability. These being public interest concerns, it would be difficult to change the track at this juncture. 3.1.4 It is however, proposed to price the spectrum of 1.8 MHz beyond 4.4 MHz upto 6.2 MHz. The TRAI in its report of August 2007 has recommended that any licensee who seeks to get additional spectrum beyond 10 MHz in the existing 2G bands, i.e. 800, 900 and 1800 MHz after reaching the specified subscriber numbers shall have to pay a onetime spectrum charge at the below mentioned rates on pro-rata basis for allotment of each MHz or part thereof of spectrum beyond 10 MHz as shown in the following table. Telecom Service Area Mumbai, Delhi Spectrum Acquisition charges for 2 x .5 MHz (GSM or CDMA) and Rs.80 crore and Rs.40 crore Rs.15 crore

Category A Chennai, Kolkata Category B Category C

For one MHz of spectrum in Mumbai, Delhi or Category A service areas, the service provider would have to pay Rs. 16 crore as one time spectrum acquisition charge. It would amount to approx. Rs.210 Crore for one MHz of additional spectrum, panIndia. 3.1.5 The Department is of the view that it would be appropriate to a levy the charge for enhancement of the quantum of spectrum beyond the initial 4.4 MHz. For an additional spectrum of 1.8 MHz

making a total of 6.2 MHz spectrum acquisition charge may be on pro-rata basis i.e. Rs. 378 crores pan-India. It will be charged only to new allottees as the existing ones have got the spectrum as per license agreement. 4. Price of Spectrum beyond 6.2 MHz The UASL does not explicitly provide any provision or spectrum beyond 6.2 MHz and upto 10 MHz, however the UASL clause 43.5(iv) provides that the Licensor has right to modify and / or amend the procedure of allocation of spectrum including quantum of spectrum at any point of time without assigning any reason. Hence the spectrum beyond 6.2 MHz should be properly priced keeping in mind the market value of spectrum. 4.1 Auction Path: Since we are not auctioning startup spectrum of 4.4 MHz and only pricing additional allocation of 1.8 MHz as explained earlier, therefore, we can take 6.2 MHz as threshold for consideration for auction as this also falls beyond the provisions of the license agreement. The following points are brought out:

2G GSM Spectrum bands are 890-915 MHz paired with 935960 MHz, 1710-1755 MHz paired with 1805-1890 MHz i.e, 2.5 MHz is available in 900 & 75 MHz band is available in 1900 MHz band making a total of 100 MHz. Out of this more that 37 MHz stand allocated to the GSM service providers in different service areas. Remaining 63 MHz, major portion of the spectrum in 1800 MHz band is being used by Defence.

120 LOIs have been issued and startup spectrum is to be allotted to them as well as for the growth; existing operators should be given 6.2 MHz, subject to availability.

After this allotment, hardly any identifiable free spectrum will be available, which is a pre-requisite for auction.

 At any given time one or two operators will be eligible for beyond 6.2 MHz based on the subscribers linked criteria. Hence if an auction is to be held, competition would be limited. Hence auctioning may not be successful in providing optimum value due to (a) limited availability of spectrum & (b) limited competition. TRAI has also not recommended for auctioning of 2G spectrum in view of the following:

Service providers were allocated spectrum at different

times of their licenses and the amount of spectrum with them. Therefore, to decide the cutoff after which spectrum is auctioned will be difficult and might raise issue of level playing field.

Penetration of

mobile service is to happen in semi

urban and rural areas, where affordability of the services to the common man is the key for further expansion: In view of all these factors, auction of 2G spectrum at this juncture does not appears to be viable solution. 4.2 Fix Price for spectrum beyond 6.2 MHz

The following two options were considered: Option 1 For this purpose it may be desirable to index, the entry fee of Rs. 1650 crores in the year 2003-04 (for initial 4.4 MHz) i.e. Rs. 375 crore per MHz, for inflation, potential for growth of tele-density and revenue etc. appropriately. If we take an inflation of about 5% per year for 4 years upto 2007-08, which would mean about 20% compounded inflation till 2007. Therefore additional charges can be levied at 20% of Rs. 375 crore for one MHz of spectrum i.e. Rs. 425 Crores.

This option is not favored in view of the low value of spectrum. Option 2 The service area wise AGR figures per MHz for the years 200304, and anticipated figure were calculated and is given at Annexure I. It may be seen that there is an increase of about 3-5 times, if the figures of 2007-08 with 2003-04 is compared. It is for consideration to charge x times of base price of Rs.375 crore/MHz, where x is to be decided. This will be charged to existing as well as new entrants. Those who decide not to pay may be asked to surrender the excess spectrum beyond 6.2 MHz 5. Enhancement of present revenue share towards spectrum

usage charges 5.1 It may be mentioned that the spectrum usage charges are

levied at the rate of 2% (or 2 x 4.4 MHz). Any additional bandwidth, if allotted, beyond 4.4 MHz and upto 6.2 MHz shall attract 3% revenue share and 4% for upto 2 x 10 MHz of AGR depending upon the quantum of spectrum allotted to the licensee. 5.2 It is proposed that the categorization at present used for

license fee may be used for spectrum charges also viz. Metro-I (Delhi, Mumbai), Metro-II (Kolkata), Category A, Category B and Category C circles and to levy spectrum charge of 8% of AGR for Metro I, II and Category A circles and 5% for category B circles and 4% for category C service areas irrespective of allotment of quantum of spectrum. 5.3 With the above formulation, it is envisaged that revenue

towards spectrum charges for the year 2008-09 may be about

Rs.3600 crores as against of about Rs.2500 crores according to the existing revenue share formulation. 6. Mergers and Acquisition (M&A) In the context of intra-circle merger and acquisition, TRAI in their report of August 2007 have considered various factors, namely Definition of Market Assessment of Market Power criteria and Methodology, Determination of minimum number of access service providers in a post merger scenario and spectrum cap of the merged entity. The TRAI Recommendations had been considered by Telecom Commission. Some of the issues have been referred back to TRAI for consultation. In view of very large number of new players, it is expected that consolidation is likely to take place in the industry in future. 6.1 In view of this, we need to have clear guidelines relating to

M&A. We also need to consider fees on account of transfer of spectrum to the merged entity. In the event of M&A the transfer charge to the Government has not been considered by TRAI in their recommendation of August 2007. This is a complex issue requiring detailed deliberation and consultation. Therefore the issue of quantum of fees which the Government would get on account of transfer of spectrum during M&A needs to be referred to TRAI. Based on the Recommendations of TRAI on the above issue, DoT will take appropriate decision with a specified time period and issue clear and transparent guidelines for M&A including transfer charges for spectrum.

11 February 2008 Ministry of Finance Department of Economic Affairs ____________________________________________________ Sub: Telecom Fees and Charges and Spectrum Pricing 1. After the meeting between the Finance Minister and the Minister for Communications on 30 January 2008, there were three rounds of discussion between the Finance Secretary and Secretary (Telecom). Secretary (Telecom) sent a note (dated 8 February 2008) summarizing the discussion (copy attached). This sequel note from DEA attempts to set out the current position regarding telecom fees and charges and pricing of spectrum, and defines the issues for decision: 2. Currently, there are three types of levies on Unified Access Service License (UASL) holders of both GSM and CDMA technologies. These are: (i) (ii) (iii) Entry Fee 3. Entry fee is a fixed upfront charge and is circle-specific. If an operator operates in all the 23 telecom circles of the country, the entry fee aggregates to Rs.1650 crore. This entry fee was fixed on the basis of a TRAI recommendation of October 2003 that entry fee for UASL be pegged in the highest bid price of the 2001 auction. This fee has not been revised since 2003. The 121 licenses issued in January 2008 were also based on this fee (There are already 180 UASL licenses across the 23 telecom circles). DoT has taken the position that entry fee is not in the nature of license fee or spectrum usage charge. License Fee 4. Currently, license fee is levied as a share of the Adjusted Gross Revenue (AGR). With effect from 1.4.2004, the license fee Entry fee Licence fee (as a share of revenue) Spectrum Usage Charge (as a share of revenue)

has been 10% of AGR for Category-A, 8% of AGR for Category-B and 6% of AGR for Category-C. The yield from this levy is estimated at Rs.8300 crores for 2007/08 and Rs.11000 crores for 2008/09. Spectrum Usage Charge 5. Spectrum usage charge is pegged to the bandwidth and is calibrated as a percentage of the AGR. The range is from 2% of AGR for 4.4 + 4.4 MHz, 3% for 6.2 + 6.2 MHz and 4% for 10 + 10 MHz in the case of GSM operators. Spectrum usage charges is marginally different for CDMA operators. For both GSM and CDMA operators there is extra rate of 5% and 6% for spectrum of frequency beyond 10 MHz. But spectrum of this frequency has not yet been allotted. The revenue yield from spectrum usage charge is estimated at Rs.2000 crores for 2007/08 and Rs.2500 crores for 2008/09. Allocation and Pricing of Spectrum Current Regime 6. Under the current regime, spectrum is allotted free of cost. A start-up spectrum of 4.4 + 4.4 MHz is allotted along with the license or at the earliest time spectrum becomes available after the issue of a license. Thereafter, eligibility for additional spectrum is linked to the subscriber base. As soon as an operator reaches a prescribed subscriber base, additional spectrum corresponding to the increased subscriber base is allotted to him subject to availability of spectrum. 7. This Note does not deal with the need, if any, to revise the entry fee or license fee. This note addresses issues surrounding: (i) revision of spectrum usage charge; (ii) pricing of spectrum; and (iii) allocation of spectrum. This entire discussion covers only 2G spectrum. Revision of Spectrum Usage Charge

8.

As indicated in paragraph-5, spectrum usage charge is

linked to the bandwidth, and is levied at the rate of 2%, 3% and 4% depending on the quantum of spectrum allocated to an operator. 9. A levy linked only to the bandwidth allotted to an operator which is uniform across the country does not capture the circles specific scarcity value of spectrum. For example, there is a higher premium on spectrum in metro circles like Delhi and Mumbai than in the far flung telecom circles of the North East. The spectrum usage charge should be calibrated to reflect the circle specific premium on it. 10. MHz. The optimal way of doing this would be to categorize the However, the 23 existing telecom circles in the country country into telecom categories based on aggregate AGR per already stand divided into 5 categories. Although not strictly based on a scientific metric like AGR/MHz, the existing categorization has a rough correspondence to the volume of business in each category. 11. The question is should we attempt a more scientific categorization or stay with the existing categorization. The balance advantage might lie in staying with the existing categorization rather than attempting a fresh categorization. Accordingly, spectrum usage charges could be revised from the current rate of 2%, 3% and 4% linked to bandwidth to a percentage based on volume-of-business categorization as follows: Proposed Revised Spectrum Usage Charge ---------------------------------------------------------------------------------------Category Metro-I (Delhi, Mumbai) Metro-II (Kolkata) Category-A Category-B Spectrum Usage Charge % of AGR 8% 8% 8% 6% ----------------------------------------------------------------------------------------

Category-C 12.

4%

---------------------------------------------------------------------------------------MoF and DoT are agreed on this revision. If spectrum usage charge is revised as above, the revenue yield in 2008/09 will go up from an estimated Rs.2500 crores to Rs.3600 crores. Pricing of Spectrum 13. This present regime of allocation of spectrum free of charge has failed to capture its scarcity value, yields monopoly rents to operators, and is clearly inefficient. There is a strong and fairly self-evident economic, business and revenue case of pricing spectrum. DoT has also indicated that it will be possible to price spectrum at the time of allocation in addition to levying the spectrum usage charge. 14. The only argument against spectrum is that it will raise the costs for operators which they will inevitably pass onto the users. Such an outcome will go against the national objective of broadening and deepening telecom access. This is a valid concern. However, a full or even partial pass through is not inevitable. It can be argued that if we maintain a competitive market, the poor will not be priced out. 15. If we decide to price spectrum, there are two options. Either we auction it or charge a market determined fixed price. These alternatives are discussed below: Auction of Spectrum 16. Auctioning spectrum suggests itself is as a clear first choice. (i) (ii) (iii) 17. Best method of discovering price Is more transparent and provides a level playing field Promotes competition It has several merits.

However, it will be problematic for us to adopt the auction

route at this late stage mainly for historical legacy reasons. A number of operators have already been given spectrum free of

charge. The spectrum available for auction, therefore, will be quite limited (DoT has not been able to indicate the precise quantum of spectrum that will be available for allotment). Efficient price discovery becomes possible only if the supply is large and there are a number of potential buyers: a thin market has clear limitations in signaling a price. It may turn out that the discovered price is either too low or too high. In its August 2007 report (para 2.79), TRAI too advised against auctioning of spectrum on the ground that it will trigger issues of level playing field. 18. Auction will be viable if we can increase the quantum of spectrum available. This can be done by withdrawing the spectrum already allotted to existing operators and putting all of it on auction. Both existing and new license will then bid on a clean slate. This is evidently an extreme measure, and has significant practical and legal implications. Market Based Price Determination 19. 20. If auction is ruled out, what are the alternatives for The value of spectrum embedded in the entry fee provides a determining an appropriate market based price for spectrum? possible reference frame for pricing spectrum. Currently, 4.4 MHz of spectrum is allotted at the entry level on payment of an entry fee of Rs.1650 crores for pan-India operation. This translates to an embedded price of Rs.375 crores/MHz. This price was discovered in 2001 and fixed in 2003/04. Using this reference frame price, there are two options for determining the current price of spectrum. Price Determination Option 1 21. The first option for pricing is to take this reference price and inflate it for the cumulative inflation between 2003/04 and 2007/08. The cumulative inflation during this period was approximately 20%. Applying this on the reference price of Rs.375 crore/MHz yields a current price of Rs.425 crore/MHz. This is evidently too

low and does not reflect the phenomenal change in technology and business models during the intervening years. This pricing model is therefore, not acceptable. Price Determination Option 2 22. A simple single indicator of the growth in telecom business in a given circle is the AGR/MHz aggregated across all operators in that circle. We can estimate the number of times (multiple) the aggregate AGR/MHz grew in each circle bet 2003/04 and 2007/08. The reference price embedded in the entry for each circle can be multiplied by this multiple. 23. Assume a pan-India operator, operating across all the 23 circles in the country. A rough estimate made by DoT shows that across the country AGR/MHz has increased by 3.5 times between 2003/04 and 2007/08. So the operator will be charged Rs.1312 crore (Rs.375 crore x 3.5) on allocation of 1 MHz of spectrum for operation on a pan-India basis. Since most operators operate only in some of the circles, this price determination can be done on a circle specific basis. 24. This price determined as above should be charged on both existing and new operators. Those who do not choose to pay should be asked to surrender the spectrum allocated to them. 25. base. What amount of spectrum should be priced? 26. The next question is whether all the spectrum allocated to an operator should be priced or only spectrum beyond the start-up allocation of 4.4 MHz. 27. Clause 43.5(i) of the UAS License Agreement provides as Initially, a cumulative maximum of upto 4.4 MHz + 4.4 MHz shall be allocated in the case of TDMA based systems follows: If spectrum is not auctioned but priced as above, allocation of spectrum will continue to have to be linked to the subscriber

or a maximum of 2.5 MHz + 2.5 MHz shall be allocated in the case of CDMA based systems on a case by case basis subject to availability 28. DoT is of the view that it is not advisable / possible to price the start-up allocation of a 4.4 MHz on the following argument. Allocation of 4.4 MHz spectrum is part of the license Agreement. This start-up spectrum was given free of cost in the past. The new entrants who were given licenses in January 2008 paid the entry fee on the understanding that they would get this start-up spectrum would be a breach of this understanding. It will also disturb the level playing field between the existing operators and the new licencees. This may also trigger litigation. 29. DoT is agreeable to pricing of spectrum beyond 4.4 MHz. However, they have suggested a differentiated pricing regime. According to them, there should one price of spectrum between 4.4 MHz and 6.2 MHz (1.8 MHz), and another price for spectrum beyond 6.2 MHz. In August 2007, TRAI recommended a price for licencees who seek spectrum beyond 10 MHz. DoT wants to apply this price for spectrum between 4.4 MHz and 6.2 MHz. for spectrum beyond 6.2 MHz, DoT is agreeable to using the price determined as at paragraph 22 above.
30.

Ministry of Finance differs from the above position of DoT.

There is no contractual obligation to allot a start-up spectrum of 4.4 MHz to every licencee free of cost. The entire range of the spectrum allotted should be priced. The issue of level playing field can be addressed by charging this price even on existing operators. 31. Moreover, the differentiated pricing suggested by DoT, viz. one price for spectrum between 4.4 and 6.2 MHz and a different price for spectrum beyond 6.2 MHz will be clumsy, nontransparent and legally questionable. It will be neat and transparent to fix a single circle-specific price for spectrum across the entire bandwidth.

Mergers and Acquisitions (M&A) 32. It is likely that the market will see considerable M&A activity over the next few years. It should be Governments endeavor to ensure that this consolidation happens in an efficient and healthy manner. One question that arises is whether the Government should get a premium out of an M&A transaction. Since spectrum has not been auctioned but priced heuristically, it is likely that the rent, if any, involved in the price of spectrum will form part of the M&A transaction which would typically involve a host of other assets and liabilities, is a complex task. TRAI is best positioned to think through and advise on this issue. The ToRs to TRAI in the regard should be: (i) What should be the guidelines for M&As between UASL operators? (ii) Should Government get a premium out of M&A activity? And (iii) if yes, how can this premium be determined? Issues for Decision 33. The following issues need to be decided in respect of 2G spectrum. (i) Should spectrum usage charge be revised (paragraph 9) (ii) Should spectrum be priced? (paragraph 13, 14) (iii) If spectrum is to be priced, is auction a viable option? (paras 16-18) (iv)If spectrum is to be priced, is auction a viable option or is the pricing method suggested at paragraph 23 acceptable? If not, what is the alternate pricing model? (v) Should the initial spectrum of 4.4 MHz be given free or should this also be priced? (paras 27-28 & 30) (vi)Should there be a differentiated pricing regime as suggested by DoT or should there be a single price across the entire bandwidth? (paras 29 & 31) (vii) Should the issue of M&A be referred to TRAI (paragraph 32)

Ministry of Finance Department of Economic Affairs Sub: Telecom Spectrum 2G & 3G 1. 2. Discussed the attached note with FM Today. On the file relating to release of spectrum by the Air Force, I

have indicated the decisions of FM regarding 2G spectrum relating to: (i) raising the spectrum usage charges; and (ii) pricing. Those decisions may be indicated in our response to the DCN. We must also pursue this with Department of Telecom either in the meeting of the Telecom Commission or outside of that. 3. On 3G, FMs view is that auction must be based on ICB. The

only stipulation we must impose is that the bidders must be prequalified on the basis of prior operational exposure to the telecom sector. If the bidder is a consortium of a foreign and a domestic party, it should be enough if either party has operational exposure to the sector. 4. I have orally communicated the gist of this to Secretary,

Department of Telecom. FM said that he will also speak to Minister for Communications. Sd/(D. Subbarao) Finance Secretary 7.4.2008 AS (EA) Sd/8.4.2008 JS (Infra) OR (in cc) Encl: As above

Spectrum -2G, 3G & WIMAX Notes for Discussion After discussing with FM, I spoke to Secretary, DOT. The following notes are for further discussion in order to crystallize DEA Position. I. 2G (i) Spectrum usage charge: The scheme of increase proposed by DOT lower than what was agreed during consultations with MoF, Secretary, DOT says CDMA operators not agreeable to shifting from a usage charge linked to quantum of bandwidth (as is the current practice) to usage charged linked to categorization reflecting scarcity value of spectrum (as proposed by us). Why should we fall in line? (ii) Pricing of spectrum: DOT is agreeable to pricing of spectrum beyond 4.4 MHz but wants this deferred till auction of 3G and WIMax is completed. In our note, we suggested pricing of all spectrum including spectrum already allocated. Is there a case for deferring this decision? Is there merit in disclosing the pricing intention right now even if actual implementation is deferred? II. 3G: (i) Everyone is agreed that the only way forward is auction. The only issue is whether to restrict auction to existing players or to make it a global auction. (ii) The advantages and disadvantages of either option are as follows: Arguments for open global auction 1. Will avert categorization / rent-seeking behaviour.

2. 3.

Spectrum will be priced efficiently. Wider participation will bring out convergence, technological innovation in voice and data services and improve the prospects of investment in the sector.

4.

The methodology is legally robust and not open to question.

Arguments for restricting auction to existing UAS license holders (10 players) 1. Existing players have invested in infrastructure and therefore have a claim for prioritization. 2. They have systems in place and can deliver 3G services at lower incremental cost this will enable faster and more efficient roll out. May pass on lower cost to consumers. 3. There are presently 4 to 7 operators per Circle. Sufficient critical mass exists to ensure competitive bidding, discourage catelization and offer services that are of acceptable quality and price. 4. Bids in global auction may go too high jeopardizing viability and hence roll out. (UK experience of open auction in 2001 unhappy no full roll out yet). (iv) 3G available spectrum is 30 MHz; 6 auction blocks of 5 MHz each 1 block reserved for BSNL at L-1 (highest bid) price. The rest will be sold as per auction. Reserve price Rs1,000 crore per block. Translates to Rs 6,000 crore for 6 blocks.

Expected auction price Rs 3,000 crore per block (3 times reserve price) Expected revenue yield Rs18,000 crore for 6 blocks. III. WIMAX (ii) (iii) Issues and options same as for 2G Only the number of existing players will be about 16 as WIMAX auction is open to ISPs also.

Notes at page 85-86/n deals with the Draft Note to CCEA received from Department of Telecom seeking financial approval for Rs. 1077.16 crore for laying an alternative communication network for the India Air Force. After the alternative network is laid the IAF is expected to release 45 MHz of spectrum. 02. The Note was examined earlier on another file and

FSs and FMs minutes thereon have been extracted as part of the comments to the Note on this file. 03. At this stage, the basic issues relating to pricing of maybe raised. The discussion and

spectrum

recommendations thereon may be on the basis of specific formulation(s) received form DoT. 04. Para 4.0 of DFA has been amended based on Finance

Secretarys note dated 11th February, 2008. Amended DFA may please be considered for approval. Sd/(Bindhushree Khullar) Additional Secretary (EA) 03.04.2008 FS. 1. This was discussed with FM today. The note used for discussion is placed below. 2. FM agreed that spectrum usage charges should be increased reflecting the scarcity value of spectrum as indicated in our note of 11 February, 2008. 3. On pricing of spectrum, FMs view is that we must insist, in principle, on pricing spectrum (beyond 4.4 MHz)

although details can be worked out after the auction of 3Gs spectrum. 4. Please modify the OM accordingly. Please let me see it before issue. Sd/(D. Subbarao) Finance Secretary 7.4.2008 AS(EA) JS(Infra) Dir(Infra)

FILE NO.3/11/2003-INFRA Ministry of Finance Department of Expenditure Infrastructure Division New Delhi, April 6, 2008 OFFICE MEMORANDUM Subject: Financial approval of Rs.1,077.16 crore for laying of alternative communication network for Indian Air Force for release of Spectrum. Ministry of Communications and Information Technology

(MoC&IT), Department of Telecommunications (DoT) may refer to UO No.11/1/12/12006-Policy-I, dated January 29, 2008 enclosing therewith a Draft Note for CCEA on the subject mentioned above. Comments of Ministry of Finance (MoF) Department of Economic Affairs (DEA) on the proposal at Para 6.1 of the Draft Note as under: 2.0 As pointed out by DEA in the meeting of the Full Telecom Commission, held on September 4, 2006, the proposal to commence work on co-ordination of spectrum vis--vis Armed Forces has been taken up prematurely, without evolving a consensus on security issues, particularly with the Army, and tying up budgetary provisions in advance. In absence of adequate groundwork, there have been cost and time overruns, and the Project, initially slated to finish by December, 2006 has got delayed by nearly two years. Moreover, taking up implementation of the Project without first securing necessary approvals from Competent Authority amounts to a procedural lapse, which may not be repeated in future. 3.0. However, in view of the compelling urgency of making available adequate spectrum for further development of 2G/3G

services, the proposal of DoT is agreed to, subject to the following observations: 1. DoT may take urgent steps to get the spectrum available with Army and Navy vacated within a maximum period of 6 months, and actual implementation in this regard to also commence within this period; 2. Pricing of the spectrum being vacated to be in such a manner, as to not only ensure recovery of costs of the Project, but also to ensure an adequate source of receipts for General Revenues; 3. As regards allocation for funds, DoT may present their case before the Planning Commission for the allocation of the amount from within the overall authorized GBS. 4. Union Cabinet, in its meeting on October 31, 2003, inter alia,

decided that spectrum pricing would need to be decided mutually between DoT and MoF so as to provide incentive for efficient use of spectrum as well as disincentive for sub-optimal usage. In the context of this decision, the issues that need to be decided in respect of 2G spectrum were discussed by Finance Secretary in three rounds of meetings with Secretary (Telecom) in February, 2008. Accordingly, the following amendments are being suggested in Pricing of Spectrum, its allotment among Access providers and Spectrum Usage Charges: 1. Any allotments of spectrum to access subscriber licensees under UASL regime beyond the initial start up allocation of 4.4. MHz may henceforth be specifically priced and charged for. Details in this regard can be worked out; 2. The price determined as above may be made applicable to both the new and existing operators; such operators who do not intend to pay the new charges may be given the option of surrendering the spectrum allotted to them; 3. Spectrum Usage Charge, instead of being charged as a fixed percentage of Adjusted Gross Revenue (AGR) for

different spectrum bands, may henceforth be charged as a percentage of AGR based on volume of business categorization, so as to better reflect and capture the circle specific scarcity value of spectrum. The revised charges proposed for various Circles are as per the table annexed to this OM and as agreed in the discussions between Finance Secretary and Secretary, Department of Telecom; 4. The recommendations of TRAI for revising the subscriber base criteria for allotment of spectrum may be considered for implementation in the interest of enhancing efficiency of spectrum usage and encouraging technological innovations. 4.1 The recommendations as above would be applicable to

allotments of spectrum in the 2G range as commonly understood, irrespective of the type of technology deployed and the quantum of spectrum held. 5.0 The principles which would be employed to govern allotment

of spectrum in the 3G range as commonly understood, may be settled in consultation with DEA, in accordance with the October 31, 2003 decision of the Union Cabinet, referred to above. 6. This issues with approval of Minister of Finance. Sd/(Govind Mohan) Director Department of Telecommunications, (Sri S Behuria, Secretary) Sanchar Bhawan, New Delhi Recommendations of TRAI dated August 28, 2007; Paras 2.61, 2.62, pp 38-39 of the Report. Comments of Department of Economic Affairs.

ANNEX Proposed Enhanced Scheme for Spectrum Usage Charge Category Metro-I (Delhi, Mumbai) Metro-II (Kolkata) Category-A Category-B Category-C Spectrum Usage Charge % of AGR 8% 8% 8% 6% 4%

Comments of Department of Economic Affairs.

FILE NO. 3/11/2003-INFRA Ministry of Finance Department of Expenditure Infrastructure Division New Delhi, April 8, 2008 OFFICE MEMORANDUM Sub: Financial approval of Rs. 1,077.16 Crore for laying of alternate communication network for Indian Air Force for release of Spectrum. Ministry of Communications and Information Technology (MoC&IT), Department of Telecommunications (DoT) may refer to UO NO. 11/1/12/12006-Policy-I, dated January 29, 2008 enclosing therewith a Draft Note for CCEA on the subject mentioned above, Comments of Ministry of Finance (MoF), Department of Economic Affairs (DEA) on the proposal at Para 6.1 of the Draft Note are as under: 2.0 As pointed out by DEA in the meeting of the Full Telecom

Commission, held on September 4, 2006 the proposal to commence work on co-ordination of spectrum vis--vis Armed Forces has been taken up prematurely without evolving a consensus on security issues particularly with the Army and tying up budgetary provisions in advance. In absence of adequate groundwork, there have been cost and time overruns, and the Project, initially slated to finish by December 2006 has got delayed by nearly two years. Moreover, taking up implementation of the Project without first securing necessary approvals from Competent Authority amounts to a procedural lapse, which may not be repeated in future.

3.0

However, in view of the compelling urgency of making

available adequate spectrum for further development of 2G/3G services, the proposal of DoT is agreed to, subject to the following observations: 1. DoT may take urgent steps to get the spectrum available with Army and Navy vacated within a maximum period of 6 months, and actual implementation in this regard to also commence within this period. 2. Pricing of the spectrum being vacated to be in such a manner, as to not only ensure recovery of costs of the Project, but also to ensure an adequate source of receipts for General Revenue; 3. As regards allocation of funds, DoT may present their case before the Planning Commission for the allocation of the amount form within the overall authorized GBS. 4.0 Union Cabinet, in its meeting on October 31, 2003 had, interalia, decided that spectrum pricing would need to be decided mutually between DoT and MoF so as to provide incentive for efficient use of spectrum as well as disincentive for sub-optimal usage. In the context of this decision, the following amendments are being suggested in Pricing of Spectrum, its allotment among Access providers and Spectrum Usage Charges: 1. Any Allotments of Spectrum to access subscriber licensees under UASL regime may henceforth be specifically priced and charged for. The charge may be determined, Circle wise, by adopting the Entry Fee, fixed for that circle in 2003-04, and thereafter inflating it by the multiplier, which represents the growth in aggregate AGR per MHz between 2003-04 and 2007-08; hence, for a Pan India operator, the Circle fee fixed in 2003-04 (Rs. 375 Crore per MHz) would be inflated by a multiple of 3.5 (which represents the growth in AGR/MHz between

2003-04 and 2007-08) to yield the new Spectrum price of Rs. 1,312 Crore per MHz (approximately); 2. The price determined as above may be made applicable to both the new and existing operators; moreover, the entire range of spectrum allotted may be charged, for both new and existing operators; such operators who do not intend to pay the new charges may be given the option of surrendering the Spectrum allotted to them; 3. Spectrum Usage Charge, instead of being charged as a fixed percentage of Adjusted Gross Revenue (AGR) for different Spectrum bands, may henceforth be charged as a percentage of AGR based on volume of business categorization, so as to better reflect and capture the circle specific scarcity value of Spectrum. The Base Charges proposed for various Circles, applicable as a flat rate for Spectrum allotment upto 2x5 MHz are as per the Table in Annex to this OM; 4. In order to ensure that service providers make use of various possible technological features for enhanced spectrum efficiency before they ask for additional Spectrum, for any additional Spectrum allotted beyond 2x5 MHz, the access subscriber licensees under UASL regime may be charged @ 1% of AGR per MHz allotted (pro rata), in addition to the Base Rate, uniformly for all circles; 5. The allotment of Spectrum may continue to be linked to the subscriber base; however, TRAI, in its recommendations of August, 2007 on Review of License terms and conditions and capping of number of access providers have inter alia concluded that the present Spectrum allocation criteria needs to be immediately reviewed as it is not spectrally efficient and has not taken into consideration the present technology innovations for increasing spectral efficiency. TRAI have suggested

creation of a Multi-Disciplinary Committee to frame a new long term spectrum allocation Criteria; and, in the interim, recommended a revision of the existing subscriber base criteria which enhances the present subscriber norms; the recommendations of TRAI may be implemented with immediate effect, in the overall interest of optimum utilization of a scarce national resource. 4.1 The recommendations as above would be applicable to

allotments of spectrum in the 2G range as commonly understood, irrespective of the type of technology deployed and the quantum of spectrum held. 5.0 The principles which would be employed to govern allotment

of spectrum in the 3G range as commonly understood, may be settled bilaterally between DoT and MoF, in accordance with the October 31, 2003 decision of the Union Cabinet, referred to above. 6.0 This issues with approval of Minister of Finance. Sd/(GOVIND MOHAN) Director Department of Telecommunications (Sri S. Behuria, Secretary) Sanchar Bhawan NEW DELHI Fax No. 23711514

ANNEX

Proposed Base Rates for Spectrum Usage Charge

Category Metro-I (Delhi, Mumbai) Metro-II (Kolkata) Category-A Category-B Category-C

Spectrum usage Charge % of AGR 8% 8% 8% 6% 4%

Notes at page 85-86/n deals with the Draft Note to CCEA received from Department of Telecom seeking financial approval for Rs. 1077.16 crore for laying an alternative communication network for the India Air Force. After the alternative network is laid the IAF is expected to release 45 MHz of spectrum. 02. The Note was examined earlier on another file and

FSs and FMs minutes thereon have been extracted as part of the comments to the Note on this file. 03. At this stage, the basic issues relating to pricing of maybe raised. The discussion and

spectrum

recommendations thereon may be on the basis of specific formulation(s) received form DoT. 04. Para 4.0 of DFA has been amended based on Finance

Secretarys note dated 11th February, 2008. Amended DFA may please be considered for approval. Sd/(Bindhushree Khullar) Additional Secretary (EA) 03.04.2008 FS. 5. This was discussed with FM today. The note used for discussion is placed below. 6. FM agreed that spectrum usage charges should be increased reflecting the scarcity value of spectrum as indicated in our note of 11 February, 2008. 7. On pricing of spectrum, FMs view is that we must insist, in principle, on pricing spectrum (beyond 4.4 MHz)

although details can be worked out after the auction of 3Gs spectrum. 8. Please modify the OM accordingly. Please let me see it before issue. Sd/(D. Subbarao) Finance Secretary 7.4.2008 AS(EA) JS(Infra) Dir(Infra)

FILE NO.3/11/2003-INFRA Ministry of Finance Department of Expenditure Infrastructure Division New Delhi, April 6, 2008 OFFICE MEMORANDUM Subject: Financial approval of Rs.1,077.16 crore for laying of alternative communication network for Indian Air Force for release of Spectrum. Ministry of Communications and Information Technology

(MoC&IT), Department of Telecommunications (DoT) may refer to UO No.11/1/12/12006-Policy-I, dated January 29, 2008 enclosing therewith a Draft Note for CCEA on the subject mentioned above. Comments of Ministry of Finance (MoF) Department of Economic Affairs (DEA) on the proposal at Para 6.1 of the Draft Note as under: 2.0 As pointed out by DEA in the meeting of the Full Telecom Commission, held on September 4, 2006, the proposal to commence work on co-ordination of spectrum vis--vis Armed Forces has been taken up prematurely, without evolving a consensus on security issues, particularly with the Army, and tying up budgetary provisions in advance. In absence of adequate groundwork, there have been cost and time overruns, and the Project, initially slated to finish by December, 2006 has got delayed by nearly two years. Moreover, taking up implementation of the Project without first securing necessary approvals from Competent Authority amounts to a procedural lapse, which may not be repeated in future. 3.0. However, in view of the compelling urgency of making available adequate spectrum for further development of 2G/3G

services, the proposal of DoT is agreed to, subject to the following observations: 1. DoT may take urgent steps to get the spectrum available with Army and Navy vacated within a maximum period of 6 months, and actual implementation in this regard to also commence within this period; 2. Pricing of the spectrum being vacated to be in such a manner, as to not only ensure recovery of costs of the Project, but also to ensure an adequate source of receipts for General Revenues; 3. As regards allocation for funds, DoT may present their case before the Planning Commission for the allocation of the amount from within the overall authorized GBS. 4. Union Cabinet, in its meeting on October 31, 2003, inter alia,

decided that spectrum pricing would need to be decided mutually between DoT and MoF so as to provide incentive for efficient use of spectrum as well as disincentive for sub-optimal usage. In the context of this decision, the issues that need to be decided in respect of 2G spectrum were discussed by Finance Secretary in three rounds of meetings with Secretary (Telecom) in February, 2008. Accordingly, the following amendments are being suggested in Pricing of Spectrum, its allotment among Access providers and Spectrum Usage Charges: 1. Any allotments of spectrum to access subscriber licensees under UASL regime beyond the initial start up allocation of 4.4. MHz may henceforth be specifically priced and charged for. Details in this regard can be worked out; 2. The price determined as above may be made applicable to both the new and existing operators; such operators who do not intend to pay the new charges may be given the option of surrendering the spectrum allotted to them; 3. Spectrum Usage Charge, instead of being charged as a fixed percentage of Adjusted Gross Revenue (AGR) for

different spectrum bands, may henceforth be charged as a percentage of AGR based on volume of business categorization, so as to better reflect and capture the circle specific scarcity value of spectrum. The revised charges proposed for various Circles are as per the table annexed to this OM and as agreed in the discussions between Finance Secretary and Secretary, Department of Telecom; 4. The recommendations of TRAI for revising the subscriber base criteria for allotment of spectrum may be considered for implementation in the interest of enhancing efficiency of spectrum usage and encouraging technological innovations. 4.1 The recommendations as above would be applicable to

allotments of spectrum in the 2G range as commonly understood, irrespective of the type of technology deployed and the quantum of spectrum held. 5.0 The principles which would be employed to govern allotment

of spectrum in the 3G range as commonly understood, may be settled in consultation with DEA, in accordance with the October 31, 2003 decision of the Union Cabinet, referred to above. 6. This issues with approval of Minister of Finance. Sd/(Govind Mohan) Director Department of Telecommunications, (Sri S Behuria, Secretary) Sanchar Bhawan, New Delhi Recommendations of TRAI dated August 28, 2007; Paras 2.61, 2.62, pp 38-39 of the Report. Comments of Department of Economic Affairs.

ANNEX Proposed Enhanced Scheme for Spectrum Usage Charge Category Metro-I (Delhi, Mumbai) Metro-II (Kolkata) Category-A Category-B Category-C Spectrum Usage Charge % of AGR 8% 8% 8% 6% 4%

Comments of Department of Economic Affairs.

File No. 3/11/2003-INFRA

SECRET/CONFIDENTIAL

NOTE FOR FINANCE MINISTER

Subject:

Comments issued by Department of Economic Affairs (DEA) on Drafts Note for CCEA, of Department of Telecommunications (DoT) on Financial approval of Rs. 1,077.16 Cr for laying of alternate communication network for Indian Air Force for release of Spectrum.

Finance Minister had directed the undersigned to submit a Note explaining the circumstances under which the Office Memorandum dated April 08, 2008 has been issued by DEA on the above subject. The chronological sequence of events is recounted as under: -

Date January 29, 2008

Event Draft Note received from DoT on the subject mentioned above in Department of Expenditure: The limited issue is release of Rs. 1,078 Crore for laying of alternate Communication network for IAF, as additional budgetary support within 2007-08. The note is transferred to Department of Economic Affairs (DEA) since spectrum related issues are involved exact date of transfer not available on

DEA files. March 01, The Note is flagged as Urgent pending matter to be 2008 disposed off expeditiously before the undersigned after his joining as Director Infrastructure Division of DEA.

March

7, Comments submitted for consideration on the Draft

2008 Note on File No. 3/11/2003-INFRA. March 11, Finance Minister approves suggestion of Finance 2008 Secretary to use the Note for CCEA as an opportunity to raise basic issues of pricing of spectrum for the entire range of spectrum under commercial use (photocopy of Notes at Annexure I/p3) March 12, Finance Secretary places in file a Note prepared in 2008 DEA on telecom fees and charges for spectrum pricing to be used for formulating comments on the issues involved (Photocopy of Notes Annexure II, March 2008 pp 4-11) 31 The Notes placed in file by Finance Secretary, as also various recommendations of TRAI in this regard used to prepare comments and a Draft OM placed on file for approval of higher authorities (Photocopy of proposed comments at Annexure III, April 2008 April 2008 pp 12-15) 03, AS (FA) modifies the Draft OM submitted. Modified version of the OM at Annexure IV, pp 16-19. 07, The matter is discussed further with Finance Minister by Finance Secretary on the basis of a Note prepared by him. (Photocopy at Annexure V, pp 20-21), Vide his marginal notings, FM agrees to the following: 1. Scarcity factor must be taken into account in fixing spectrum usage charges 2. On pricing of spectrum, decision now, details April 2008 later. 7, Finance Secretary approves a Draft OM for issuance based on discussions with FM, duly recorded on file (photocopy file notings in this regard at Annexure VI p 22; OM approved for April issuance at Annexure-VII, pp 23-25) 8, The earlier Draft OM, which was saved on the

2007

undersigneds computer is inadvertently printed and signed by mistake. Hence, OM at Anenxure III is issued instead of the one actually supposed to have been issued at Annexure-VII. 09, The error in issuing the wrong OM is detected after media reports attribute certain stipulations on spectrum pricing to Ministry of Finance, which, however, are not there in the final approved OM. Accordingly, the undersigned delivers the correct OM personally to Wireless Advisor, DoT whose reception on behalf of Secretary, DoT may be seen on Annexure VII at the bottom. As informed by Advisor (Wireless) the incorrect version of OM received was not processed in the DoT file. JS (Infra), DEA speaks personally to Secretary, DoT asking for withdrawal of the earlier OM and the request is acceded to by Secretary, DoT.

April 2008

2.0 V. 3.0

The OM finally issued is based on the discussions held by

FS with FM, the gist of which is recorded and placed at Annexure

In as far as the issuance of the wrong OM, in the first

instance is concerned, the mistake, though inadvertent, is purely assignable to a lapse on the part of the undersigned. For this lapse, the undersigned is agreeable to bear the consequences of any action - disciplinary or otherwise which the Department may contemplate against him. 4.0 This Note, which has been seen by JS (Infra) and AS (EA),

is being submitted as per FMs directions through HCI, London; Finance Secretary is on tour. Sd/-

(GOVIND MOHAN) Director April 10, 2008 Finance Minister (Camp: London) Through: Minister, Economic, HCI, London (Total: 25 pages)

I accept that the lapse in sending the wrong OM was inadvertent. However, drafting or issuing OMs on draft Note for Cabinet/CCEA etc. should be done with greater care. For Instance, the wrong OM dated 8.4.2008 is captioned Ministry of Finance, Department of Expenditure. The modified draft OM at annexure-IV is also captioned, Ministry of Finance, Department of Expenditure and is addressed to Ministry of Power (Sh. S. Behuria, Secretary), Sanchar Bhawan, New Delhi. The final OM, which is the correct version, sent on 8.4.2008 (Annexure-VII) is also captioned Ministry of Finance, Department of Expenditure. 2. 3. These errors could have been easily avoided. That apart, the draft note received from DoT was indeed

considered by me on 11.03.2008. Thereafter, that file containing the draft note from DoT and the proposed OM was not put up to me. What was considered was only a non-paper given to me by the Minister of Telecommunications on which I had been informed by FS that DEA would send a non-paper containing our views. It is in this context that the note for discussion was prepared; a discussion took place; and I had indicated my views on the margin of that note. Logically, this should have been followed by sending a non-paper to the DoT. However, if there was an intention to send a formal OM containing our views on the draft note for cabinet received from DoT, that file should have been put up to me and

my signature obtained. I may note that I was in office on 8.4.2008 and 9.4.2008. 4. Such errors should be avoided in future.

Sd/(P. Chidambaram) Finance Minister 16.04.2008 (D. Subbarao)

Sd/Finance Secretary 16.04.2008

April 21, 2008 Dear As you are aware, based on your non-paper on spectrum charges, Finance Secretary has held discussions with Secretary, Ministry of Communications & Information Technology. Based on those discussions, I enclose a non-paper containing our views on issues relating to 2G spectrum and issues relating to 3G / WiMax Spectrum. 2. After you have had an opportunity to examine the same,

may we meet and discuss and reach some conclusions? These conclusions could then be presented to the Hon'ble Prime Minister. With regards, Yours sincerely, Sd/(P. Chidambaram) Shri A. Raja Minister for Communications & Information Technology Electronics Niketan CGO Complex, Lodhi Road New Delhi -110 003 End: a/a

SPECTRUM ISSUES - NON PAPER Issues relating to 2G Spectrum I. Spectrum Usage Charges

Spectrum usage charge is currently linked to the bandwidth and the rate of charge is a function of quantum of spectrum allocated to an operator. DoT, in their communication dated February 08, 2008 (copy enclosed) had agreed to change the existing system in favour of a percentage of AGR based on Circle specific rates, which reflects the scarcity value of spectrum and envisages a premium for circles with higher volumes of business. However, in their present formulation, as indicated in their non-paper, DoT is persisting with the bandwidth linked levy, albeit with a higher percentage charge on each range of bandwidth. DEA is of the view that the revised methodology as indicated in the February 8, 2008 letter to DoT should be pursued. The existing rates, proposed rates of DoT and recommendation of DEA in this regard are depicted in the table below: Current position Bandwidth Range (MHz) Upto 4.4 4.4 6.2 6.2 8.0 8.0 10.0 10.0 12.5 12.5 15.0 II. % of AGR 2% 3% 4% 4% 5% 6% Proposal of DoT nonProposal of DEA % of AGR 3% Metro-I (Delhi & 4% 5% 5.5% 6% 6.5% 7% 7.5% Mumbai) Metro-II (Kolkata) Category-A Category-B Category-C 8% 8% 8% 6% 4% paper Bandwidth % of AGR Circle Category Range (MHz) Upto 4.4 4.4 6.2 6.2 - 7.2 7.2 - 8.2 8.2 - 9.2 9.2 - 10.2 10.2 - 11.2 11.2 - 12.2

Pricing of 2G Spectrum

DoT is agreeable to pricing of spectrum beyond 4.4 MHz but wants this deferred till auction of 3G and WiMax is completed. An in principle decision on this issue may be taken at this stage itself, with the details to be worked out later. III. Revision of Spectrum Entitlement criteria

(unrelated) IV. Issues relating to 3G/WiMax spectrum

(unrelated) V. Allocation of WiMax spectrum

(unrelated)

(Handwritten note)
1.

Handed over a copy of the note to FM 2. Retained 1 copy Sd/Finance Secretary 29.4.2008 Dir (Infra)

Issues relating to 2G 1. Finance Minister forwarded a non-paper indicating the

views of the Ministry of Finance on spectrum related matters to Minister for Communication and IT on April 21, 2008. As instructed by FM, Finance Secretary also met with Secretary, DoT on April 24, 2008 to carry forward the discussion. The following is an update on the outstanding issues. Can we charge for spectrum while also collecting usage charges? 2. DEA is of the view that it is legally and administratively

tenable to impose a two part tariff for spectrum: a fixed, one-time upfront spectrum price for allowing the allottees to use a public resource for private profit; and, a recurring usage charges whereby Government shares the profits accruing to the operator. The upfront spectrum pricing also protects the Government against inefficient utilization of spectrum by an operator. Pricing of Spectrum 3. We may recommend the following principles for pricing of

spectrum:

(i) The startup spectrum of 4.4 MHz for GSM (2.5 MHz for CDMA may be exempted from upfront pricing both for new and existing operators.
(ii)

Under the UASL Licensing regime, there appears to be an implicit, indirect contractual obligation to allow further allotment of spectrum, beyond 4.4 MHz for GSM (2.5 MHz for CDMA), and upto 6.2 MHz for GSM (5 MHz for CDMA) after payment of 1% additional spectrum usage charges and ensuring that already allocated spectrum has been optimally and efficiently utilized. This may effectively protect operators who have existing allocations upto 6.2 MHz for GSM (5 MHz for CDMA) from payment of any other charges, including the "up front" spectrum price. Since it may not be possible to charge operators already having allocations upto this range, the principle of equity and level playing field would require that the operators, who get fresh allotment of spectrum upto 6.2 MHz for GSM (5 MHz for CDMA) too should not be charged for spectrum upto 6.2 MHz for GSM (5 MHz for CDMA).

(iii)Spectrum

beyond 6.2 MHz incase of GSM (5 MHz in case of

CDMA) should be priced. This is defensible on the following grounds. First, as per the terms of the UAS license, there is no contractual obligation on the part of the Government to necessarily allot spectrum beyond 6.2 MHz (beyond 5 MHz incase of CDMA); and, secondly, Government retains the sovereign right to modify the terms of license as also the procedure for allocation of spectrum, including quantum of spectrum, at any point of the time without assigning any reason. 4. The relevant extracts of the licensing provisions are
(a) Clause

extracted as under: 43.5(ii) of License Agreement for provision of Unified Access Service states, . additional spectrum beyond (4.4

MHz/ 2.5 MHz ) may also be considered for allocation after ensuring optimal and efficient utilization of the already allocated spectrum however, spectrum not more than 6.2/5.0 (GSM/CDMA) shall be allocated to the licensee ( emphasis added)
(b)

Clause 18.3.1 of the License for provision of Unified Access Services after Migration for CMTS states any additional bandwidth, if allotted subject to availability and justification shall attract additional license fee as revenue share (typically 1% additional revenue share ) if bandwidth allocated is upto 6.2/5 MHz in place of 4.4/2.5 MHz. (emphasis added) Clause 43.5 (iv) of both the Licenses (DoT have been using this Clause to allow allotments of spectrum beyond 6.2 MHz (for GSM) /5 MHz (for CDMA) with enhanced spectrum usage charges) as above states, . The Licensor has the right to modify and/or amend the procedure of allocation of spectrum including quantum of spectrum at any point of time without assigning any reason.

(c)

(d) Clause

5.1 of the both the Licenses as above states, the

Licensor reserves the right to modify at any time the terms and conditions of the License, if expedient in public interest or in the interest of security of the State or for the proper conduct of the telegraphs. 5. Hence, spectrum allocations beyond 6.2 MHz (GSM) /5 MHz

(CDMA) may be charged an upfront price, both in respect of new and existing allotments. It will of course be open to existing operators to relinquish their allocations if the new pricing regime is not acceptable to them. How to Price - Auction or Fixed Charge? 6. The principles that should govern pricing have been

discussed at length between DEA and DoT. Auctioning of

spectrum was not found to be feasible on account of (i) legacy issue; and (ii) only a limited amount of identifiable free spectrum being available (auction is realistically possible if a large amount of spectrum is available). It was therefore, agreed between DEA and DoT that best and most practical way, under the circumstances of determining a price for 2G spectrum would be to draw from the entry fee of Rs. 1650 crore (for 4.4 MHz) fixed in 2003/04. This translates to Rs.375 crore per MHz at 2003-04. This is to be multiplied a factor of 3.5 reflecting the growth in aggregate AGR per MHz between 2003-04 and 2007-08. This works out to Rs 1,312 core per MHz. Spectrum Usage Charges 7. Spectrum Usage Charge is currently linked to bandwidth,

and the rate of charge is a function of the quantum of spectrum allocated to an operator. DEA has argued that a rate of charge linked to bandwidth is not rational and that the rate of charge must reflect the scarcity value of spectrum. This can be accomplished by making spectrum usage charge circle or category specific. It is estimated that this changeover would double the current yield from spectrum usage charges from Rs. 2,800 crore (Assuming a consolidated AGR of telecom sector of Rs 60,000 cr in 2007-08; @ 3.5% of AGR, assuming a growth rate of 20% pa) to Rs 5,200 crore3 (estimates, for 2008-09) (Assuming a weighted average rate of 7% of AGR, total AGR Rs 60,000 cr in 2007-08 and a 20% growth rate). 8. There have been several alternative proposals / models for

enhancing spectrum usage charges. 9. TRAI in their August, 2007 recommendations, proposed an

increase in spectrum charge by 1% of AGR for spectrum allocation beyond 8 MHz and a one-off fixed charges beyond 10 MHz. The

estimated yield under this formulation will be Rs. 3,250 crore (2008-09) (Rs 200 crore would be the realization from operators having more than 8 MHz currently; Rs 250 crore is expected from operators having more than 10 MHz it is assumed that only 2 operators per circle would go in this category in 5 Category-A circles and 3 Metro Circles). The TRAI model also postulates a single part tariff, which is in the form of spectrum usage charge till 10 MHz cutoff and in the form of a specific spectrum price beyond. This model is not acceptable because of: (i) low additional yield; (ii) there being no sanctity for the thresholds of 8 MHz and 10 MHz and 10 MHz. 10. DoT, in their recommendations contained in the non-paper

handed over to Finance Minister, proposed an increase in 1% of AGR over existing rates upto 7.2 MHz; and a step increase of 0.5% for every 1 MHz increase thereafter. The estimated yield of the DoT model is in the range of Rs 3,800- 4,000 crore (2008-09). This is also not acceptable because: (i) a low additional yield; and (ii) the model persists with the current flawed System of linking rate of charge to allotted bandwidth. 11. Reliance Communication Limited (RCL) have proposed

increasing spectrum charges by 2% beyond 6.2 MHz and, applying fixed charges for allocations beyond 6.2 MHz with value of the charge being derived from the price discovery under 3G auctions. However, since price discovery through 3G auction is yet to take place, the financial implication of the proposal estimated by Reliance Communications at Rs. 7,800 crore is hypothetical and cannot be validated. 12. The proposals of DoT, TRAI and RCL suffer from the

additional limitation that they all contemplates single part tariff.

13.

It is evident that the maximum realization in terms of'

revenue comes from the DEA formulation. The additional advantage of using this formulation - besides its linkage to scarcity value - is that it represents a break from the current structure. This is important for the following reasons. Currently, the spectrum usage charge is linked to bandwidth; a rate of 4% from 6.2 MHz upto 10 MHz; and 1% higher for 12.5 MHz; and so on. It is possible under the present dispensation for operators to argue, for example, that the additional 1% that they pay for going from 10 MHz to 12.5 MHz is, in fact, the price for the additional spectrum, and that levy of a spectrum, usage charge on top of that is not tenable. 14. We may, therefore, continue to canvas the DEA formulation,

which is as follows: Circle Category Metro I (Delhi, Mumbai) Metro II (Kolkata) Category A Category B Category C Spectrum Usage Charge as % of AGR 8% 8% 8% 6% 4%

Issues relating to 3G/WiMax Spectrum Allocation of 3G/WiMax spectrum 15. DoT had recommended two options in this regard: auction among existing UAS (including ISP licenses, for WiMax) license holders; or, and open global auction (ICB). DEA expressed an explicit preference for the ICB model with re-iteration of the mandatory roll out clause and pre-conditions relating to prior experience in the sector net worth criteria etc., being specified for pre-qualification of bidders. Since these recommendations of DEA are not in line with those or TRAI (contained in the September;

2006 Report on "Allocation and Pricing of 3G and BWA Spectrum"), DoT, wrote to TRAI on April 10, 2008 asking for reconsideration of their earlier recommendations on restricting auction for 3G/WiMax spectrum to existing operators and to widen the ambit to include new applicants, both Indian and foreign, who have appropriate experience in the telecom sector (copy-of DO letter of Secretary, DoT to Finance Secretary enclosed). Issues relating to Mergers and Acquisitions 16. DoT have issued a notification on April 22, 2007 on "Guidelines for intra service merger of Cellular Mobile Telephone Service (CMTS)/ Unified Access Services (UAS) Licenses" (copy attached). 17. The guidelines derive substantially from the

recommendations made by TRAI on this subject vide Report of August, 2007. The guidelines mandate a "spectrum transfer charges to be payable as specified by Government. 18. DoT may be advised that fixation of "spectrum transfer

charges" shall be in consultation with DEA.

BRIEF FOR FINANCE MINISTER Meeting with Minister of Telecommunications and IT May 28, 2008 1. DEA position on various issues relating to allocation and

pricing of spectrum 2G and 3G has been summarized in the updated position paper submitted to Finance Minister on April 29, 2008. The main features of the recommendations are summarized below: Issues relating to 2G spectrum 2. It is legally and administratively tenable to impose a two part tariff for spectrum: a fixed, one-time upfront spectrum price for allowing the allottees of spectrum to use a public resource for private profit; and a recurring usage charge, whereby Government shares the profits accruing to the operator. 3. 4. Spectrum allocation upto 6.2 MHz for GSM (5 MHz for Spectrum allocation beyond 6.2 MHz for GSM (5 MHz for CDMA) may not be charged both for existing and new allottees. CDMA) ought to be charged, in terms of an upfront price, both for existing and new allocations. The principle employed for charging should draw from the initial entry fee of Rs 1,650 crore (for 4.4. MHz (GSM)/2.5 MHz (CDMA)) fixed in 2003-04 suitably inflated for the growth in AGR/MHz between 2003-04 and 2007-08. Spectrum allottees not willing to pay this price can relinquish their allotments. 5. The current practice of linking spectrum usage charges to bandwidth may be replaced by making spectrum usage charges circle or category specific. The formulation recommended by DEA in this regard, while yielding maximum revenue (as compared to the other formulations advanced by DoT, TRAI and CDMA operators) also represents a break from the current practice and strengthens the arrangement for a two part tariff. This manner of levying spectrum usage charges has also been recommended by

the Cellular Operators Association of India (CoAI) in their representation to Finance Minister dated May 08, 2008. Issues relating to 3G/WiMax Spectrum 6. Allotment of 3G spectrum may be made on the basis of an International Competitive Bidding (ICB) process, with reiteration of the existing mandatory roll out clause and preconditions relating to prior experience in the sector, net worth criteria etc being specified for pre-qualification of bidders. 7. Both TRAI and CoAI (representation dated May 26, 2008) have argued in favour of auction among UAS (including ISP licenses, for WiMax) license holders. The main arguments in support of this recommendation are as follows: (i) The new entity bidding for 3G spectrum will need a UAS License. There is a queue for this license and the practice is to allot the license on a first come first serve basis. If the new entrants are allocated spectrum through auction and then granted the license subsequently, it would amount to effecting a backdoor entry into UASL. On the other hand, if the entity is not granted a UAS License, it would amount to creating a new class of licenses, which would need reference to TRAI. (ii) The existing licensees, who have huge investments in infrastructure and systems, will be in a better position to roll out 3G services faster and at lower incremental cost. Presence of 13-14 UAS Licenses per circle will ensure enough competition to have a meaningful price discovery. 8. (i) These arguments are not found to be tenable on account of following reasons: Spectrum allocation for 3G services should be treated sui generis and not an extension of the 2G allocation process. It is for this reason alone that with respect to allocation of 3G spectrum, a spectrum acquisition price and a different

process for price discovery have been prescribed by TRAI; different rates for spectrum usage charges than being used currently have been laid down; and, more stringent roll out obligations have been defined. (ii) The modifications required in the terms of license for 3G services can be effected using the power conferred on Government vide Clause 43.5(iv) of the UAS License, which states, the Licensor has the right to modify and/or amend the procedure of allocation of spectrum including quantum of spectrum at any point in time without assigning any reason This clause may be used to amend the allotment procedure of 3G spectrum and no reference to TRAI for creation of a new license is warranted. (iii) While the number of operators per circle has gone up after award of 120 UASL Licenses in January, 2008 and averages around 13-14 per circle, it would not be correct to argue that mere presence of numbers would lead to sufficient competition. A preliminary analysis suggests that nearly 7075 of the total Licensees at present (279) have none or insignificant prior experience of the Telecom sector; moreover, the actual holders of spectrum are not more than 7-8 per circle. The competition, thus, in actual fact, is restricted to these established players and there is every possibility of collusion/ cartelization taking place amongst these operators while bidding for 3G spectrum. The other licensees have been granted licenses but do not have any spectrum allocation. Most in this category also do not have any prior telecom experience and have not invested in telecom infrastructure as yet. Therefore, the argument of TRAI that existing operators have invested heavily in infrastructure and will be at a disadvantage if ICB is done is not correct in the context of such licensees. (iv) While presence of basic infrastructure, e.g. transmission towers, will lead to synergies in extension of telecom

services by existing operators to 3G operations there is no case for presuming that new entrants will not be in a position to make requisite investments in similar infrastructure. In fact, with the presence of telecom infrastructure companies in the market, the roll out of 3G services by new players can also be equally swift in a market driven, competitive situation, there is no cause for denying fresh entrants the right to enter the fray on grounds that they do not have the same advantages as the existing players. 9. The initial position of DEA in this regard may continue to be maintained. Issues relating to Mergers and Acquisitions: 10. DoT have issued a notification on April 22, 2007 on Guidelines for intra service merger of Cellular Mobile Telephone Services (CMTS)/ Unified Access Services (UAS) Licenses (copy attached). The guidelines mandate a spectrum transfer charge to be payable as specified by Government. 11. DoT may be advised that fixation of spectrum transfer charges shall be in consultation with DEA.

Infrastructure Division, DEA.

Spectrum Issues 1. The issues contained in the attached note dated 4 July 2008

were discussed with PM by FM and Minister (Telecom) on July 4, 2008. Secretary (DoT) and I were present. 2. All the issues have been agreed to as in the note. In

particular, it was also decided that the proposal to extend licences for the spectrum overhang period (to make the licence coterminous with the last tranche of spectrum allotted) as discussed in para 12 of the note will not be pursued because it is administratively and conceptually clumsy and potentially problematic from the legal angle. 3. Please reconfirm that the SBI-PLR method will yield revenue

of Rs.3000 crore plus even without the proposed licence extension. The SBI-PLR method was agreed to on this express understanding.

Sd/(D. Subbarao) Finance Secretary 6 July 2008 AS (EA)

Ministry of Finance Department of Economic Affairs July 04, 2008 Spectrum Issues - Update (Update on Papers dated February 11, April 17 & 29, and June 11, 10, 27 & 30, 2008) 1. Meetings took place between Finance Minister and Minister of Telecommunications on May 29, 2008 and June 12, 2008 to resolve outstanding issues relating to allocation and pricing of 2G and 3G spectrum bands. The DEA paper, in following paragraphs, attempts to consolidate the position on the outstanding issues. 2. The issues that are taken up for discussion in this paper are i. Raising spectrum usage charges for 2G spectrum
ii.

summarized as under: Pricing of spectrum for 2G allocations

iii. Method of allocation of 3G spectrum I. 3. Spectrum Usage Charge for 2G Spectrum Spectrum usage charge is pegged to the bandwidth and is

calibrated as a percentage of the Adjusted Gross Revenue (AGR). In view of historical legacy reasons and the administrative issues involved in changing an established practice, it was decided to continue with the current practice of levying spectrum usage charges on the basis of varying percentages of AGR for different bandwidths of spectrum.

4.

It has been agreed to raise the rates as indicated in Table 1

below. This will yield revenue of Rs 4,149 crore in 2008-09, an increase of Rs 1,270 crore over the revenue yield on the current rate structure. Table 1: Spectrum usage charges and Revenue Implications thereof for 2008-09 Bandwidth Range (MHz) Upto 4.4 4.4 6.2 6.2 8.0 8.0 10.0 10.0 12.5 12.5 15.0 Revenue Implication Cr.) Source: DoT Finance II. 5. Pricing of Spectrum for 2G Allocations It is legally and administratively tenable to impose a two part for 2008-09 (in Rs. Spectrum usage charges as a % of AGR Existing Price Proposed Price 2% 3% 4% 4% 5% 6% 2,879 3% 4% 5% 6% 7% 8% 4,149

tariff for Spectrum: a fixed, one-time "upfront" spectrum price for allowing the allottees to use a public resource for private profit; and, a recurring spectrum usage charge, whereby Government shares the profits accruing to the operator. However, due to historical legacy reasons, spectrum allocations upto 6.2 MHz for GSM (5 MHz for CDMA) shall not be charged both from new and existing operators. 6. It has been agreed that the "base price" shall be determined

by taking the entry fee of Rs.1,650 crore (determined in 2003-04) for pan-India operation of UASL licensees as the price of spectrum

for 6.2 MHz of bandwidth for GSM operators (a similar exercise is possible for CDMA operators also). This translates to an embedded price of Rs.266 crore/MHz (for pan India operation). 7. Since the unit price determined as above relates to 2003-04,

it needs to be indexed to reflect the increase in the price level. Two options have been worked out. 8. In the first options the embedded price of spectrum is

updated using SBI PLR, compounded on a monthly basis, from the date of allotment of additional spectrum beyond 6.2 MHz, upto March 31, 2008, for the purpose of determining the amount payable by existing operators as on March 31, 2008. The indexing factor works out it to 1.52 and represents the time value of the price of spectrum for the duration over which it remained unrecovered from the operators. For new operators, who are allotted spectrum beyond 6.2 MHz after March 31, 2008, the putative spectrum price as on March 31, 2008 would be updated to the date of allotment using the same methodology of compounding the SBI PLR on a monthly basis. 9. In the second option, the indexation is made using the

number of times by which GDP (at current market prices) has gone up between 2003-04 and 2007-08, in order to determine the amount payable by existing operators, for spectrum beyond 6.2 MHz, as on March 31, 2008. This is premised on the assumption that the growth in GDP reflects, in a rough and simple manner, the "scarcity" value of spectrum, i.e., the GDP growth rate can be used as a proxy parameter for updating the embedded price of spectrum, as derived from the 2003-04 Entry Fee. This indexation works out to 1.7. For operators who will be allotted spectrum beyond 6.2 MHz after March 31, 2008, the updating factor will be indexed to the GDP (at current market prices) for the year in which

the spectrum allocation beyond 6.2 MHz takes place, with the base year remaining the same, i.e, 2003-04. 10. Broad Estimates indicate that while the methodology using

PLR would yield Rs 3,028 crore the revenue yields in the option using GDP would be Rs 3,400 crore, by way of upfront charge for spectrum beyond 6.2 MHz allotted upto March 31, 2008. 11. The lacuna in the first option is that over the last five years, SBI PLR rates have had an inverse relationship with nominal GDP as well as GDP at factor cost. This implies that in a growing economy, when the demand for spectrum will rise, the first option will, in fact, undervalue its price. (Annex may be seen). 12. These rates shall be applicable for the entire duration of the initial license period of 20 years for all operators, Extension in license period and the conditions for extension shall be as per the extant policy at the time of expiry of the license. IlI. 13. Method of Allocation of 3G spectrum DEA and DoT have agreed that allotment of 3G spectrum

will be made on the basis of the Interactional Competitive Bidding (ICB), with reiteration of the existing mandatory "roll out" clause. The present criteria for pre-qualification will be followed for 3G auction, viz all interested parties eligible for the UASL license will participate. A non-licensee who succeeds in obtaining 3G spectrum in the ICB process, for a particular circle, would be granted a license to operate 3G services in that circle.

Press Information Bureau, Government of India

Ministry of Communications & Information Technology 07-November, 2008 18:18 IST DoT Statement on spectrum issue The following is the text of Press statement issued at the Press Conference held by the Minister of Communications & IT Thiru A. Raja in New Delhi today: There have been several reports in the media and other quarters regarding valuation of new licences and alleged loss to the exchequer. It is clarified that there has been no deviation in the policy approved by the Cabinet on 31st October 2003 for issuance of new licenses. The above decision is based on NTP 1999 and supported by TRAI recommendations from time to time. NTP-99 is the bedrock regarding issuance of licence and allocation of spectrum. NTP 99 in para 3.1.1 says, "The entry of more operators in a service area shall be based on the recommendations of the TRAI who will review this as required and no later than every two years. CMSP operators would be required to pay a one time entry fee. The basis for determining the entry fee and the basis for selection of additional operators would be recommended by the TRAI. Apart from the one time entry fee, CMSP operators would also be required to pay licence fee based on a revenue share. It is proposed that the appropriate level of entry fee and percentage of revenue share arrangement for different service areas would be recommended by TRAI in a timebound manner, keeping in view the objectives of the New Telecom Policy".

In addition, the guidelines for Basic Service Licence dated 25.1.2001 in para 26 enunciates the policy of allocation of spectrum on first-come-first-served basis. TRAI in 2003 recommended that "entry fee of the fourth Cellular Operator would be the entry fee in the new Unified Access Licensing Region" This amount is Rs.1658 crores for a PAN India license. In consonance with NTP 99 & TRAI recommendations, the guidelines issued for UAS Licences in 2005 inter alia contains in para 19 that "The LICENSEE shall pay spectrum charges in addition to the Licence Fees on revenue share basis". Further Para 37 of Guidelines of UASL 2005 also stipulates the allocation of spectrum to licencees as follows :For wireless operations in SUBSCRIBER access network, the frequencies shall be assigned by WPC Wing of the Department of Telecom from the frequency bands earmarked in the applicable National Frequency Allocation Plan and in coordination with various users. Initially a cumulative maximum of upto 4.4 MHz + 4.4 MHz shall be allocated in the case of TDMA based system @ 200 KHz per carrier or 30 KHz per carrier or a maximum of 2.5 MHz + 2.5 MHz shall be allocated in the case of CDMA based system @ 1.25 MHz per carrier, on case by case basis subject to availability. Subsequently, TRAI has again in August 2007 recommended the following "It is therefore recommended that in future all spectrum excluding in 800, 900 and 1800 bands should be auctioned so as to ensure efficient utilisation of this scarce resource. In the 2G bands (800 MHz / 900 MHz / 1800 MHz), the allocation through auction may not be possible as the service providers

were allocated spectrum at different times of their license and the amount of spectrum with them varies from 2x4.4 MHz to 2x10 MHz for GSM technology and 2 x 2.5 MHz to 2 x 5 MHZ in CDMA technology. Therefore, to decide the cut off after which the spectrum is auctioned will be difficult and might raise the issue of level playing field" (para 2.79). Further, TRAI also recommended in August, 2007 that "No cap be placed on the number of access service providers in any service area" (para 2.37). In addition TRAI also recommended that "Keeping in view the objective of growth, affordability, penetration of wireless services in semi-urban and rural areas, the Authority is not in favour of changing the spectrum fee regime for a new entrant. Opportunity for equal competition has always been one of the prime principles of the Authority in suggesting a regulatory framework in telecom services. Any differential treatment to a new entrant vis--vis incumbents in the wireless sector will go against the principle of level playing field" (para 2.78). These established policy regarding issuance of license, allocation of spectrum and charges thereon have been followed by the successive governments till date. Regarding sale of shares by SWAN and UNITECH, it is clarified that the foreign companies have entered into agreement to subscribe to the new equity shares of the Company. No share of the founding promoters of the companies have been sold. Hence, the question of windfall gain or for that matter any gain for the promoters does not arise. In the case of SWAN, Rs. 3500 crores aprox. is proposed to be inducted into the company. Similarly, in the case of UNITECH, Rs.6000 crores aprox. shall be inducted by the foreign partners in the company. This is as per FDI Policy of the Government and these transactions are going to result in

infusion of above FDI into the country. These funds in the company will be utilised for the establishment of network including infrastructure. It is clarified that it is necessary for such licensees to seek technical, managerial and financial support from suitable collaborators in order to successfully comply with license conditions which involves telecommunication operations. The valuations being quoted are post-money it reflects the value of the funds applied to the business and not the value of the licence or spectrum. This matter has been discussed and clarified with the Finance Minister. In addition, MoC&IT has on 5.11.2008, directed that Telecom Commission may deliberate on the issue of prohibiting sale of equity by promoters. Since the introduction of revenue share regime in 1999, the Government has received more than Rs. 50,000 crores on account of only licence fee. In addition to above Government has received aprox. Rs. 9000 crores on account of spectrum charges and aprox. Rs.19500 crores (Rs. 12500 crores aprox. in 2007-08 alone) on account of entry fee. In 2007-08 alone Government received aprox. Rs. 12,000 crores from licence fee and spectrum charges. This annual fee has been increasing year after year as subscriber base has been increasing. Hence, loss of revenue for not resorting to auction is only a myth and is compensated by deferred revenue every year. Regarding 3G, in line with TRAI recommendations, Government has already issued guidelines for 3G and BWA services. These have been shared with the Press on 1st August 2008. Since then the Government have received suggestions from various sources including media and the Government have issued certain modifications in full consultation and agreement with the Ministry of Finance. The auctioneer has already been appointed and the

auctioning of 3G and BWA spectrum will be completed by January 2009.

No.20-100/2007-AS-I (Pt) Department of Telecommunications (Access Services-I1 Cell) Dated 7th November 2008 MEMO FOR THE FULL TELECOM COMMISSION Subject: Prohibition of sale of Promoter's equity for UAS licence holders. 1.0 1.1 Background : Hon'ble Minister of Communications & Information

Technology in his note dated 5.13.2008 to Secretary, DOT has desired as below: "Since some misleading articles either out of lack of knowledge or vested motivation, are written in the media about the issuance of new licences and spectrum allocation more specifically in case of M/s. SWAN TELECOM and M/s. UNITECH TELECOM as these companies allegedly got unlawful enrichment, the matter was discussed with Hon'ble Prime Minister and Hon'ble Finance Minister as I observed in a press conference at Chennai. In the meeting Hon'ble Finance Minister clarified that dilution ofshares to attract foreign investment for business expansion did not amount to sale of licence and as such these companies did their share dilution as per the corporate laws. Nevertheless, I suggest that in order to remove suspicious clouds in the minds of media and people, Telecom Commission may

deliberate this issue to restrict outright sale of licences and selling of stakes by promoters to 2nd party for money." 1.2 The background of some of the Articles appearing in Press

in this regard and clarification issued by DOT are narrated below for information: (A) An Article titled "Valuation reveals loss of government" was

published in the Times of India on 30th October 2008 wherein it was mentioned that government has lost revenue on account of grant of UAS licenses and allocation of spectrum of 4.4 MHz for Pan India at a price of Rs.1651 crores. The Article states that Government collected roughly Rs. 9000 crores by allocating 120 licenses to 9 operators with the promise of 4.4 MHz start-up spectrum in 1800 MHz band in January 2008 and that the deals made by M/s. Swan and M/s. Unitech reveal that the revenue collection should have been closer to Rs. 45000 crores to Rs. 50000 crores if not more. Whole Text of the Article is at Annexurel. (B) To clarify the position of DOT in the matter and to bring out

the facts to the notice of public, a Press Release was issued on 31.10.2008. A copy of the press release is at Annexure-II. (C) Subsequently, an Article titled "Telcos deals show enterprise

values: DOT Experts say they are for spectrum" was published in The Times of India on 1st November 2008 wherein it was mentioned that DOT has ignored TRAI recommendation for auctioning of spectrum. Whole Text of the Article is at AnnexureIII. (D) A letter was issued to The Editor, Times of India, stating the

facts in the matter. A copy of the letter to The Editor is at Annexure-IV.

2.0 2.1

Status of Swan and Unitech deals : The concerned service providers M/s. Swan Telecom Pvt.

Ltd. and M/s. Unitech Wireless were asked to furnish the status report about their equity shareholding in addition to the facts about the reported transaction of equity shares of the company as being reported in the press. The copy of replies as received from these companies, namely, M/s. Swan Telecom Pvt. Ltd. and M/s. Unitech Wireless is enclosed at Annexure V and VI. It may be seen that these companies have made strategic partnership for investment in the company and have entered into agreement with foreign companies namely, Etisalat and Telenor respectively for infusion of equity capital into the company for rolling out the Telecom network in the licensed service areas. M/s. Unitech Wireless has also mentioned that they were in search of an experienced international strategic partner who would enrich the company by bringing in the benefits of successful telecom experience elsewhere. 2.2 Both these companies have categorically mentioned that the

investment brought in by their strategic foreign partners would be used for rolling out the services and this could enhance their capital base keeping the absolute share holding of their promoters intact. 2.3 The present shareholding pattern of M/s. Swan Telecom Pvt.

Ltd. and M/s. Unitech Wireless as reported by these companies is enclosed at Annexure- VII & VIII respectively. 3.0 License Conditions relating to lock-in of equity

shareholding:

3.1

It is pertinent to mention that Licence conditions in respect of

Lock-in of equity shareholding have evolved over a time period. The provision in different License Agreement in this regard from time to time is indicated in Annexure-IX. 3.2 It is evident that the clause relating to lock-in of equity

shareholding in the initial licenses were liberalized over a period of time through amendments and finally removed with due approvals of the Government. 4.0 4.1 Deliberation of the issue Government is presently issuing Unified Access Services

(UAS) licenses under UAS licensing guidelines of 2005. Since introduction of UAS licensine regime in 2003, 50 new UAS licenses have been issued till December 2006 based on the policy of First-Come-First-Served (FCFS) and spectrum was also allocated based on FCFS basis under a separate wireless Operating License, subject to availability. The number of UASL applications has been increasing and there were already about 5 to 8 licensed Access Service Providers in each service area. The increase in number of applications had increased the demand of GSM spectrum in a substantial manner. Therefore, a reference was made to TRAl on 13.4.2007, inter-alia, seeking their recommendations whether to put a limit on the number of access service providers in each service area. In its recommendations dated 28-8-2007, TRAI, inter-alia, recommended that no cap be placed on the number of access service providers in any service area. The recommendation of TRAI was accepted by the Government in October 2007 after due deliberation. It was observed that there has been a spurt in the number of applications received by DOT for grant of UAS licenses after receipt of TRAI recommendations dated 28.08.2008. Therefore, a cut-off date was announced as 1.10.2007 stating that no new UASL application will

be received after this cut-off date till further orders. 575 applications for UASL licenses were received till the cut-off date, i.e. 01-10-2007, from 46 applicant companies in respect of 22 service areas in the country. In view of the volume of applications, it was decided to issue Letter of Intents (LOIs) to all eligible applicants for UASL who applied upto 25-9-2007 (i.e. the date on which the cut-off date for receipt of applications were made public through press) in each service area. With the appropriate decision by the competent authority, 17 eligible applicant companies have been issued 122 UAS licences out of 232 UASL applications received upto 25.09.2007 from 22 different companies. Thus, total 173 new UAS licences have been issued till date since announcement of UAS regime in November 2003. Balance 343 (=575-232) applications filed within the period of 26.09.2007 and 1.10.2007 are pending but these are not likely to be considered for grant of UAS licence in foreseeable future due to sufficient competition already in place and scarcity of spectrum. Spectrum has also been allocated to new operators and additional spectrum to existing operators as per justification in many service areas. The new UAS licensees will set up the required infrastructure for providing mobile services and, would provide competition to the existing players. Public will be largely benefitted by increased competition and thereby reduction in tariff. However, to ensure that the promoters/ partners/ shareholders of the new licensees do not walk away after selling their stakes at high price and take advantage of spectrum allocation for their financial gain but should really set up the requisite network/ infrastructure and start operations of service which is intention of the government, it is desirable that some stringent conditions may be put in the licenses in this regard. 4.2 The present eligibility conditions for grant of UAS Licenses

stipulate that:

The applicant and promoters of applicant company should have a combined net-worth of amount as detailed in the Table below. Net-worth Rs.30 Crores Total Minimum Net-worth required each 100 X+ 50 Y+ 30 Z where X.Y & Z is respectively the Number of A, B & C Service Areas for which either Rs.100 Crores for each LOI / Licence have been issued or applied applicant. Rs. 100 Crores for each Category A Service Area The net-worth of only those promoters shall be counted who have at least 10% equity stake or more in the total equity of the company. Here net worth shall mean as the sum total in Indian Rupees, of paid up equity capital and free reserves. While counting Net-worth the foreign currency shall be converted into Indian Rupees at the prevalent rate indicated by the Reserve Bank of India as on the date of Application received. The minimum net worth & paid-up capital shall be maintained during currency of the Licence. 4.3 Therefore, it may be desirable that the promoters/ partners/ for in the name of Category B Service Area

for

Category C Service Area

shareholders who have 10% or more stakes in the company and whose net worth has been taken into consideration for determining the eligibility for grant of UAS license should not be able to sell their equity and walk out from the company for a period of say 5 years from the effective date of license. However, issue of additional equity share capital by the licensee companies/ their holding companies by way of private placement/ public issues shall be permitted. Further, the lock-in provisions shall not be applicable in case the shares are transferred pursuant to enforcement of pledge by the lending financial institutions/banks due to events of defaults committed by the borrowers with the

condition that such shares should have been pledged for investment only in the particular licensed project. 4.4 It is worth mentioning that the present guidelines for merger

of licences in a service area stipulate that "Any permission for merger shall be accorded only after completion of 3 years from the effective date of licenses." Therefore, the proposed lock-in of promoters/shareholders equity for a period of 5 years may be alternatively considered for a period of 3 years only. 4.5 Any unilateral modification in the license agreement if not

accepted by the licensee may be challenged in a Court of Law. However, Government reserves the right under the licence agreement for modification in terms and conditions of the license quoted as below:

The LICENSOR reserves the right to modify, at any time the terms and conditions of the LICENCE, if in the opinion of the LICENSOR it is necessary or expedient to do so in public interest or in the interest of the security of the State or for the proper conduct of the telegraphs. The decision of the LICENSOR shall be final and binding in this regard.

4.6

The UAS licences under the first-come-first-serve policy as

per guidelines of November 2005 are being granted in consonance with stipulations of NTP 99 which envisages that "Access to telecommunications is of utmost importance for achievement of the country's social and economic goals. Availability of affordable and effective communications for the citizens is at the core of the vision and goal of the telecom policy." In view of this the entry conditions for getting UAS license are not very stringent and no up-front fee for spectrum allocation has been charged in the interest of competition for ensuring good quality

service to the citizens at affordable tariff to achieve the tele-density target of 500 million phones in the country by 2010. 4.7 Therefore, the proposed amendment is in the public interest

and for proper conduct of the telegraphs. Thus, the amendment can be imposed on the service providers for a period of 3 or 5 years from the effective date of the license such that they set up the network and operate the services and not resort to outright sale of the licenses of selling of stakes by the promoters. 4.8 The above issue needs consideration in view of above

deliberations and examining legal tenability.

5.0 5.1

Proposal: As already stated in para 3.1 and 3.2 above, initially there

was a clause relating to lock-in of equity shareholding in the initial licenses, which were removed over a period of time through amendments. Further, as stated in para 4.5 above, Government reserves right for carrying out modification in the license agreement(s) in public interest and for proper conduct of telegraphs. This may need to be examined from legal angle also. 5.2 It is proposed to amend the UAS License conditions to

incorporate a condition relating to lock-in of equity shareholding to the effect that: The promoters who have 10% or more stakes in the company and whose net worth has been taken into consideration for determining the eligibility for grant of UAS license should not sell their equity in the UAS Licensee company for a period of 5 years (alternatively 3 years) from the effective date of licence(s). However, issue of additional equity share capital by the licensee companies/ their holding

companies by way of private placement/ public issues shall be permitted. Further, the lock-in provisions shall not be applicable in case the shares are transferred pursuant to enforcement of pledge by the lending financial institutions/banks due to events of defaults committed by the borrowers with the condition that such shares should have been pledged for investment only in the particular licensed project. 6.0 The proposal contained in para 5.2 may kindly be

considered for approval in the light of observations in para 5.1 above. 7.0 This is issued with the approval of Member (T), Telecom Commission.

Sd/(A.K. Srivastava) Dy. Director General (AS-I)

Unitech Wireless (Tamil Nadu) Private Limited Regd. Office: Basement, 6, Community Centre, Saket, New Delhi-110017 04 November 2008 Mr. Siddhartha Behura, Secretary, Department of Telecommunications, Sanchar Bhawan, 20, Ashoka Road, New Delhi Sub: Unitech partners with Telenor Dear Mr. Behura, Consequent to Unitech informing the Mumbai Stock Exchange and the press, on 29th October 2008, of an agreement signed on the night before, between Unitech Wireless (used collectively for 8 companies holding between them 22 UASLs across the country) and Unitech Ltd on the one hand, and Telenor Mobile Communications AS, Norway and Telenor Asia Pte Ltd, Singapore, on the other, there have been various press reports, many of them misleading, professing to throw light on the agreement. Some of the reports attempt to show the partnership in a negative light, prompted possibly by the vested interests of competing forces interested in creating barriers to the entry of respected, world renowned players. In fact, we are a bit surprised at this reaction, because Unitech Ltd had all along been transparent about its intent to diversify into other business verticals, and to rope in a global strategic partner for its telecom foray.

Officers from your department have approached us recently seeking information on the agreement. Hence, we write to apprise you of the status of implementation of the GSM services project of Unitech Wireless and also of the salient aspects of the above mentioned partnership agreement. Unitech Wireless, a 100% subsidiary of Unitech Ltd, signed 22 UASLs on 24th January 2008, after paying an entry fee amounting to Rs.1651 crores, and providing bank guarantees amounting to Rs. 880 crores. The fee was funded by a combination of equity and debt infused by Unitech Ltd, and also bank borrowings. 2. Unitech Wireless set about building a team of Indian telecom professionals to build the company, its network, its business processes, offices, distribution channels, to leverage the resources of the tower manufacturing business of Unitech Ltd, and to do all else that is required for running a successful telecom operation. It also hired the services of a renowned international strategy consultant to help develop a business plan and to advise it on various aspects of the business. 3. Simultaneously, using the services of an international Financial Wireless Advisor, initiated UBS a AG, Switzerland, for an Unitech search experienced

1.

International Strategic partner who would enrich the company by bringing in the benefits of successful telecom experience elsewhere.
4.

The status of the project on 30th September 2008 was as follows:

A project implementation cum Corporate Office at Noida, and project offices in the 5 circles where the first tranche of spectrum was received, were operational.

250 telecom professionals, including senior management like CEO, CTO, Chief Human Relations Officer, Chief of Sales and Chief Regulatory Officer were in place.

The team had completed radio planning for 5 circles. Subsequently the above work was extended to the additional 8 circles where spectrum was obtained subsequently. RFPs were prepared and floated for network, IT (including billing system) and passive infrastructure.

After detailed discussions, we are today on the brink of placing orders for network and lT systems.

Similarly we are close to finalizing arrangements for leasing of passive infrastructure from such infrastructure providers. External agencies have been commissioned for conducting market surveys, and for a comprehensive branding exercise to build upon the "Unitech" brand of the promoter company.

As on 30th September 2008, the total expenditure of Unitech Wireless comprising of the entry fee, and the expenses incurred from all the above mentioned activities stood at around Rs. 2100 cr.

Additionally, the promoters, Unitech Ltd, have supported the operation by providing corporate guarantees, and physical assets as collateral totaling about Rs 2000 cr, for procuring bank guarantees and debt from our bankers. They are also leveraging their brand and relationships with high value and enterprise customers for the benefit of Unitech Wireless. Use of Unitech's brand and access to using its sales and distribution channels, including rights to provide services to all occupiers of the group, is a part of the agreement. 5. In parallel, the partner search had narrowed down from a long initial list to two leading international operators by 30th September 2008. The agreement was finally reached with Telenor on 28th October 2008. 6. Telenor is partnering with us at a stage where about 6 months of effort, and Rs.2100 cr of expenses, have already been

expended. It is not entering an entity where the only value is the spectrum that it holds, as is attempted to be made out by some of the press reports. 7. Headquartered in Oslo, Norway, Telenor is an international provider of high quality telecommunications, data and media communication services. Telenor is one of Norway's largest companies with revenues in 2007 of approx. NOK 105 Nlion (including Kyivstar) and a work force of more than 35,800 domestically and abroad. Telenor is owned 54% by the Ministry of Industry and Trade, Norway. It has operations in 12 countries. Its emerging markets experience includes the hugely successful Grameen Phone, as a result of which we believe that Telenor can add immense value to Rural Telephony in India. 8.

We provide the salient features of the agreement: Telenor Asia Pte Ltd, Singapore will invest about Rs.6,120 crores to subscribe to new shares in United Wireless (ie. collectively in the 8 companies holding the licences). Unitech Ltd, will continue to stay invested to the extent of its equity in Unitech Wireless before the agreement. Hence, Unitech Ltd will not be selling any of its holdings in Unitech Wireless nor making any profit as a direct consequence of the partnership agreement. The investment by Telenor will represent a 60% share of the increased equity of Unitech Wireless. The cash will be brought into Unitech Wireless in stages as explained below, and will amount to 60% of the total funds infused into the business. Hence the valuations being quoted by the press are "post-money", it reflecting the value of the funds applied to the business, and not the value of the license or spectrum. The investment will be made in convenient blocks as per the funding needs of the business. With every infusion of funds, Telenor's equity will increase by a proportionate amount.

 Before the equity reaches a level which amounts to an increase in FDI, as defined in the license agreement, beyond 49%, Unitech Wireless will apply to, and obtain approval from, FIPB for going beyond 49%. The process of increase in equity from 0% to 60% is expected to take about one year. During the period Unitech Wireless would have launched operations in the 13 circles in which it presently has spectrum, and in other circles subject to allotment of spectrum. As of today no money has yet been brought in by Telenor, and hence no shares have been issued to Telenor to date.

Unitech Wireless will comply with all the requirements pertaining to FDI and ownership, as prescribed by its licence agreement, at all times.

We are proud that we have brought in Telenor, a respectable international operator with majority Norwegian Government ownership, to partner with us. Both the partners are looking forward to a long term symbiotic relationship for mutual business growth and neither intends to cash out in the foreseeable future. Not only Unitech Wireless but also the Indian Telecom Industry and the Indian consumer stand to gain from Telenors depth of understanding of emerging markets. Moreover Telenor's commitment to India comes at a time of a severe worldwide cash crunch which according to us should be matter of pride for the Government of India also. We shall be happy to meet with you, and provide any further clarifications that you or your Officers may require. Best regards, Yours sincerely, Sd/(Ashok Sud)

President - Corporate Affairs CC: Mr A.K. Srivastava, DDG (AS-I) Mr P. K. Mittal, DDG (AS-II)

Swan Telecom Private Limited Regd Off: DB House, Yashddham, Gen A.K. Vaidya Marg, Goregaon (East), Mumbai 400 063 November 4, 2008 To, Dy. Director General (AS-II)/Dy Director General (AS-I) Department of Telecommunications Ministry of Communication & Information Technology Sanchar Bhawan, New Delhi Sub: Strategic Partner Sir, We refer to the telephonic queries made by DDG AS-I and DDG AS-II last night and this morning on the above subject. In this regard, we would like to state as under:1) The Company (Swan Telecom Pvt Ltd) has entered into a

Share Subscription Agreement (SSA) on 23rd September, 2008 with Etisalat international India Limited and Genex Exim ventures Private Limited for Subscription to new Equity Shares of the Company. Etisalat is hereinafter referred to as Strategic Partner. 2) As per the SSA, Etisalat has agreed to subscribe upto 45%

in the increased equity of Swan Telecom and will invest Rs. 3217 crores (approx.) into the Company and Genex Exim Ventures Private Limited has agreed to invest Rs.380 ccores (approx.) into the Company.

3)

Pursuant to the SSA, the paid up equity capital of the

company shall stand increased to Rs.251.47 crores from the existing Rs.109.01 crores. 4) As per the SSA, "NO" shares of the founding promoter

shareholders are proposed to be sold to any party including the Incoming shareholders. As per the SSA, the founding promoter shareholders will be subscribing to further new shares into the company. 5) The founding promoter shareholders have as on date

invested Rs. 2404 crores by way of equity and preference capital and Debt in the Company. For the sake of clarity it is repeated that the founding promoter shareholders have not sold any and do not propose to sell any of their shares to any party including but not limited to the strategic investor or the Indian Investor. 6) The strategic parties shall bring in technical expertise and

global experience to roll out the services in the 13 circle where the Company has an UAS Licence. The fresh equity capital raised by the Company from the Strategic Partner, the founding promoter shareholders and the Indian investor will be utilized for rolling out the telecom network in the licence areas. Thanking you Yours truly For Swan Telecom Pvt Ltd Sd/(Dr Vinod Kumar Budhiraja) Authorized Signatory CC: Secretary, DoT

CBI's FIR No. RC-DAI-2009-A-0045 dated Oct 21, 2009

Suspected offence: Criminal misconduct and criminal conspiracy Particulars of accused: (1) Unknown officials of DoT; (2) Unknown private persons/companies and others Contents of First Information Report: A reliable source information has been received that during 2007-08 certain officials of Department of Telecommunications entered into a criminal conspiracy with certain private persons/companies and misused their official position in grant of Unified Access Service Licences causing wrongful loss to the Government and corresponding wrongful gain to those private persons/companies. In pursuance of the above mentioned criminal conspiracy, the officials of DoT issued a press release on 24.9.2007, which appeared in the newspapers on 25.9.2007 stating that no new applications for Unified Access Service licence would be accepted by the Department of Telecommunications after 1.10.2007. A large number of applications including those from competent and established telecom operators were received during the short period of 26.9.2007 to 1.10.2007. However, none of these applications were considered for allotment of Unified Access Service licence and on 10.1.2008, the above mentioned officials of DoT issued Letter of Intent (LoI) in 122 Circles to nine service providers who had applied for licence on or before 25.9.2007. Thus, the applicants who had applied before 26.9.2007 were shown favour. The justification for award of these licences without competition was given by these officials of DoT vide press release dated 10.1.2008 that application which was received first shall be processed first and if found eligible letter of intent (LoI) shall be granted to the applicant. It was further mentioned in this press

release dated 10.1.2008 that whosoever complies with the conditions of LoI first would be granted the UAS licences. As per the information received, all this was done in criminal conspiracy between certain officials of DoT and private persons/companies in order to award the licences to the companies for a heavy consideration by putting a cap on the number of applicants against recommendations of TRAI and by awarding licences to private persons/companies on first come first serve basis on the rates of 2001 without any competitive bidding. Further, there are the allegations that the above mentioned officials of DoT had selectively leaked the information to some of the applicants regarding the date of issuance of letter of intent on 10.1.2008. In the letter of intent, an arbitrary condition was incorporated that whosoever deposits the fees first would be the first to get licence. Since some of the applicants who had this information were ready with the amount were able to deposit the fee earlier than others. Thus, favour was shown to some applicants by way of leaking the information about the date of issuance of letter of intent. These licences were issued at a very nominal rate based on prices fixed in the year 2001. The quantum of loss to the Government of India because of this criminal conspiracy is estimated from the fact that M/s Swan was allotted UAS licences for 13 circles for Rs 1,537 Crores. It off-loaded 45 per cent of its share in the licence before rollout to M/s Etilsalat of UAE for Rs 4,200 crores. Similarly, M/s Unitech was allotted UAS licences for 22 circles for Rs 1,658 crores. It off loaded its 60 per cent of its share in the licence to M/s Telenor of Norway for Rs 6,100 crores even before rollout. The estimated loss to Government by grant of licences to these two companies alone comes to Rs 7,105 crores. On pro rata basis, the estimated loss for all 122 circles is more than Rs 22,000 crores.

Thus,

the

concerned

officials

of

Department

of

Telecommunications in criminal conspiracy with private persons / companies by abusing their official position granted Unified Access Service Licences to a few selected companies at nominal rate by rejecting the applications of others without any valid reason thereby causing wrongful loss to the Government of India and a corresponding wrongful gain to private persons / companies estimated to be more than Rs 22,000 crores. The aforesaid facts disclose commission of offence under sections 120-B IPC r/w section 13(2) r/w 13(1)(d) of Prevent of Corruption Act, 1988 against certain unknown officials of Department of Telecommunications, Government of India, unknown private persons / companies and others.

Extract from CAG report dated 16.11.2010

4.5

Concerns of the MoF and Finance Wing of the

DoT on continuance of entry fee fixed in 2001 were overlooked

The MoF was insisting on the issue of inclusion of spectrum pricing in the ToR of GoM constituted for spectrum vacation since early 2006. In June 2007, Finance Secretary had informed the DoT that the matter had been discussed at Hon'ble Finance Minister's level and Ministry felt that a sound policy on spectrum pricing was required. The Ministry again in November 2007 questioned the sanctity of continuing with a price determined way back in 2001 without any indexation or current valuation and sought review of the matter. DoT, conveniently quoting the 4 year old Cabinet decision of October 2003, justified to the MoF that it was authorised to calculate the entry fee for licenses depending on the date of payment, on the principles of TRAI recommendations of 2003 and that TRAI in 2007 had also not recommended any revision. Agreeing with MoF's views, Member (F) of the DoT had also sought (November 2007) an in-depth analysis of the issue prior to taking any further action to which Secretary (DoT) also concurred. Hon'ble MoC&IT observed on the file Officers have neither up to date knowledge of UAS guidelines nor have bothered to carefully go through file........These types of continuous confusions observed on the file whoever be the officer concerned does not show any legitimacy and integrity but only their vested interest.......the matter of entry fee has been deliberated in the department, several times in the light of various guidelines issued by the department and recommendations of TRAI and accordingly decision was taken that entry fee need not be revised. The action suggested that Hon'ble MoC&IT was not open to the

idea of discussing and deliberating the issues involved at appropriate levels even when there was a high risk of huge revenue loss to the Government exchequer. This is further corroborated by the fact that the date of the meeting of Telecom Commission which was scheduled to discuss the issues relating to issue of pending applications for licence and pricing of spectrum was postponed from 9 January 2008 to 15 January 2008. Without Telecom Commission getting an opportunity to discuss the matter, 121 LoIs were issued on 10 January 2008. The Hon'ble Finance Minister also held the view (15 January 2008) that Spectrum is a scarce resource. The price for spectrum should be based on its scarcity value and efficiency of usage and the most transparent method of allocating spectrum would be through auction. However, the Hon'ble Finance Minister after the issue of 121 LOIs by the DoT suggested in January 2008 to treat the previous issue of licences as a closed chapter and recommended that the price of spectrum be discovered through an auction process in future. The Government had long been aware that spectrum was a scarce natural resource which needed to be priced appropriately so as to ensure its optimal utilisation. The entire chronology of events as detailed in the Box and the manner in which it was handled, if seen with the Hon'ble Finance Minister's proposal of January 2008, suggest that the DoT acted in haste while issuing new UAS licences at a price discovered 7 years back, which deprived it of an opportunity to discover the economic value of a scarce natural resource. The availability of the spectrum is limited and the Government has to incur huge expenditure for getting it vacated from Defence authorities by providing alternate media to them. MoF should have insisted for a Cabinet decision, in view of the

following: Treating the authorisation allowed by the Cabinet in 2003 for calculation of entry fee for migration of existing operators (BSOs & CMSPs) to UASL regime based on the formula given by the TRAI (October 2003) as an open-ended one was a wrong interpretation of the DoT and particularly when Cabinet in the same decision had defined the role of MoF in the matter of spectrum pricing. Government of India (Transaction of Business) Rules 1961 provided for necessity of matter being placed before the Cabinet in case either involving financial implication on which the Minister of Finance desires or a difference of opinion arises between two or more Ministers. It was noted that on the issues of auction and allotment of 3G/BWA spectrum, MoF had quoted the above two grounds for participating in the consultative process with the DoT. The DoT informed (July 2010) that there was no undue haste in the issue of LOIs since a decision to process applications for grant of UAS licence to those who applied up to 25.09.07 was taken on 2 November 2007 and reports were already appearing in newspapers about the cut-off date. The DoT also stated that pricing of spectrum was not on the agenda of the Telecom Commission meeting which was scheduled for 15.01.2008. The reply of the DoT is not tenable as they went ahead with the process of allocation of UAS licenses without any deliberations either in the High Powered Telecom Commission or EGoM as suggested by the Hon'ble MLJ. The DoT also gave a confusing and misleading reply to the Finance Secretary to side track the valid issues raised by the Finance Secretary.

Extract from PM's interaction with Editors of Electronic Media February 16, 2011 New Delhi Question and Answer session. Q.1 Aaj Tak Arun Purie : Mr. Prime Minister, thank you for inviting us for the interaction. I hope you have more of them. I am sorry to take you back to the 2G scam although you have said that it should not be a scam oriented coverage and you have taken some very positive steps and as you have just assured us that you will get the wrong doers of the 2G scam. Just for my better understanding of how we got into this situation, you had warned Mr. Raja in November 2007 to considering auction of the 2G spectrum at 2007 rates and he actually disregarded your advice. And later on in 2008 the companies which got the spectrum sold it for large sums of money, the values which are in the public domain. Inspite of all this you appointed him again as the Telecom Minister. What was your thinking behind this? Ans PM: Let me first deal with what I said to Mr. Raja in a letter that I wrote to him on 2nd of November 2007. I mentioned in that letter number of concerns which were being expressed, some in the press, some telecom companies used to come and mention to me. I listed a number of issues and I said to him that you must look into these issues and ensure that they are dealt with in a fair, equitable and transparent manner. One of the issues that I asked him to look into was the possibility from legal and technical angle of having an auction of spectrum. Mr. Raja wrote back to me almost on the same day, or our letters crossed. He said, I have been absolutely transparent in my dealings, I will be so in the future, and you have my assurance that I have done nothing and

will do nothing which will not be consistent with the promise that I am making. Now as far as auction is concerned, he came back to me and said auction is something which has not been suggested by TRAI, also not suggested by the Telecom Commission and he also said that if we have an auction, it would not give a level playing field for the new comers, because the existing players have got their spectrum free of charge of about 10 megahertz. Therefore he said the TRAI's advice, Telecom Commission's advice and his own view was that auctions are not the way forward at least for 2G spectrum and he also mentioned in a subsequent letter that he is agreeable to auction of 3G spectrum. But with regard to 2G spectrum, he was very clear that he should stay with the then existing approach. And this was also discussed with the Finance Ministry because in terms of the Cabinet decision of 2003 the pricing and allocation of spectrum was to be settled between the Ministry of Finance and the Telecom Dept. Initially, of course, the Finance Ministry did ask for a high price of spectrum but after many discussions, the two ministries agreed that as far as 2G is concerned, we have to live with the present system particularly with regard to the amount of spectrum that is built and embedded into a license agreement. So this is the background why I did not proceed further with this matter of pricing of spectrum, because if the Ministry of Finance and Ministry of Telecom both agree and they have the obligation of the Cabinet Decision of 2003 to decide on the matter and also since TRAI is an expert body and Telecom Commission has experts, if all of them are of the same view, I did not feel I was in a position to insist that auctions must be insisted. 1 a) supplementary Q: Sale of spectrum, 2 companies even before roll out, a scam was staring everybody in the face ...?

Ans PM: I do not know, frankly speaking what was the motivation of people who got spectrum but I know that as far as the basic policy is concerned, that I thought was as it was then the prevailing practice and Raja was continuing that policy, that as far as who gets licenses, the first come first serve policy, how it was implemented, that was never discussed with me. Licenses was not matter which got referred to me or to the Cabinet that was the decision exclusively of the telecom minister. Now subsequent events have shown that Companies sold their equity but I was told that they had not sold it to shareholders. They have sold it in a manner to dilute the equity of the promoters. Now if they have to roll out they require money, and that money can be raised either by way of borrowings, or by way of diluting equity by getting in more people. Therefore at that stage I did not think that I should intervene in that affair. The other thing that you have mentioned about Mr. Raja being inducted into the Cabinet, I cannot divulge what went on in the processes of Cabinet formation but I would like to mention that we are a coalition government. In a coalition government, you can suggest your preferences but you have to go by what the leader of that particular coalition party ultimately insists. And Mr. Raja along with Mr. Maran was the choice of the DMK party. And as of that moment, I had no reason, frankly speaking, to feel that anything seriously wrong had been done. And therefore I did not feel that I had the authority to object to Mr. Raja's entry because I quite honestly in May 2009, although complaints were coming from all sides, and some were from those companies which had not benefitted, some were from those which had benefitted but not benefitted adequately and therefore I was not in a position to make up my mind that anything seriously was wrong with Mr. Raja's doing at that time. From: www.pmindia.nic.in

Statement of Sh D Subbarao, S/o Sh Late D Mallikarjan Rao, the then Secretary (Finance), Ministry of Finance, Govt of India , R/o RBI Governors Bungalow, 5, M L Dahanukar Marg, Mumbai -400026, Permanent R/o 12, Panchavati Society, Road No 3, Banjara Hills, Hyderabad- 500034 (D.O.B. 11.08.1949), Phone No. 022-22660863 (O), recorded u/s Cr.PC

I am as above. I was posted as Secretary (Finance) during April 30, 2007 to 4th September, 2006. I have been shown the File No. 3/11/2003-INF (Vol-II) of the Department of Economic Affairs, Ministry of Finance on the subject "Committee to examine the optimum spectrum utilization and other issues Pricing and Allocation of Spectrum". Before I joined as Secretary (Finance), a Group of Ministers been working on vacation of spectrum and raising resources for the purpose. The details of the same are at note-sheet page 38. From note sheet page 38-42 it is seen that the Terms of Reference issued by Cabinet Secretariat in February, 2006 included amongst others the issue of spectrum pricing, however the DOT got the TOR amended and this issue was dropped. My predecessor Sh Ashok Jha also raised this issue with Sh D S Mathur, then Secretary (Telecom) vide a letter dated 28.03.2007 (Page169 of the file). However, vide a letter dated 02.04.2007 (Page 172) was received from Secretary (Telecom) wherein it was mentioned that the TOR issued by Cabinet Secretariat in February 2006 included certain other issues, including spectrum pricing, which are within the normal work carried out by this Ministry. The Hon'ble MOC&IT has written to the Hon'ble PM accordingly in February 2006, requesting that the Terms of Reference may kindly be modified as suggested in our original proposal. The revised TOR were issued by Cabinet Secretariat in December 2006. I hope this clarifies the matter."

After this the matter was taken up by my predecessor Sh Ashok Jha, then Secretary (Finance) with Cabinet Secretary vide a letter dated 19.04.2007 (Page 171). Vide this letter the Cabinet Secretary was requested to include issues relating to technology neutral spectrum allocation and spectrum pricing in the terms of reference of the GOM. Thereafter, a letter dated 17th May, 2007 was received from Cabinet Secretariat, wherein it said that the Department of Economic Affairs and the Department of Telecommunications may discuss and resolve the matter at the level of Secretaries and thereafter Cabinet Secretariat may be advised about the decision taken in the matter. (illegible) joined the DEA as Secretary. I have now seen a Note sheet page (illegible) dated 31.05.2007. As per note I spoke on the above mentioned issue to the Secretary, DoT and he told me as following We have already complied with this request of DEA. We have agreed to include technology neutrality in the TORs. However, Spectrum pricing is a continuing responsibility of DoT and it is neither necessary nor feasible to include that in the TORs. I, however, reiterated the position of DEA drawing attention to letter dated 28.03.2007 of Finance Secretary, DOT reply dated 2.4.2007 and Cabinet Secretariat's letter dated 17.05.2007. The Secretary, DoT was however disinclined about a meeting and suggested that I write to him again. In this context I wrote to Secretary (Telecom) vide my letter dated 6th June, 2007 (Page183). I reiterated our view in the letter and mentioned that This matter has been discussed at the level of then Finance Minister. It is our view that for optimum utilization of spectrum, a sound policy on spectrum pricing would logically follow the vacation of spectrum which is the main task of GoM.

I, therefore, request you to reconsider the matter and include spectrum pricing in the TORs for the GoM." I have now seen Note sheet page 46 and state that Cabinet Secretariat, vide their OM No, 111/2/3/2007-CA.V dated 14th November, 2007 (Page 184) informed that a presentation on the issues pertaining to Spectrum allocation policy will be made by Department of Telecommunications before Cabinet Secretary on 20th November, 2007. Finance Secretary. i.e. I, was also invited to attend. I attended the said presentation, as recorded in my note dated 20.11.2007 at note sheet page 46. DOT made a presentation in the meeting on 'Guidelines for Spectrum Allocation', a copy of which is in file at pages 394 to 406. On the basis of the presentation I reopened the issue of spectrum pricing and wrote a letter dated 22.11.2007 (Page 190). The contents of the same are reproduced here in below:The purpose of this letter is to confirm if proper procedure has been followed with regard to financial diligence. In particular, it is not clear how the rate of Rs.1600 crore, determined as far back as in 2001, has been applied for a licence given in 2007 without any indexation, let alone current valuation. Moreover, in view of the financial implications, the Ministry of Finance should have been consulted in the matter before you had finalized the decision. I request you to kindly review the matter and revert to us as early as possible with responses to the above issue. Meanwhile, all further action to implement the above licences may please be stayed. On being asked as to whether the aforesaid meeting dated 20.11.2007 was meant for approval of the dual technology spectrum approvals given by DOT, I state that it was only to discuss "Guidelines for Spectrum Allocation" as stated above. On

being asked I state that my letter dated 22.11.2007 was in the context of Dual Technology, in the letter I raised the basic issue of pricing of spectrum. The matter was relevant to the new licenses about to be issued as well. However, vide a letter dated 29.11.2007, Sh D S Mathur, Secretary, DoT replied that (Letter at page 407/C): "As per Cabinet decision dated 31st October, 2003 accepting the recommendations of Group of Ministers (GoM) on Telecom matters, headed by the then Hon'ble Finance Minister, it was inter-alia decided that The recommendations of TRAI with regard to implementation of the Unified Access Licensing Regime for basic and cellular services may be accepted. DoT may be authorized to finalise the details of implementation with the approval of the Minister of Communications & IT in this regard including the calculation of the entry fee depending on the date of payment based on the principle given by TRAI in its recommendations." In terms of this Cabinet decision, the amendment to NTP 99 was issued on 11th November, 2003 declaring inter-alia that for telecommunication services the licence for Unified Access (Bask and Cellular) services permitting licensees to provide Basic and/or cellular Service using any technology in a service area, shall be issued. The entry fee was finalized for UAS regime in 2003 based on the decision of the Cabinet. It was decided to keep the entry fee for the UAS licence the same as the entry fee of the fourth cellular operator, which was based on a bidding process in 2001. The dual technology licences were issued based on TRAI recommendations recommendations of August, 28th 2007. August, TRAI, 2007, in has its not dated

recommended any changes in entry fee/annual license fee and hence no changes were considered in the existing policy. On this letter FM desired to examine the issues raised. The matter was taken up with DOT further vide letter dated 12.12.2007 written by Ms. Shyamala Shukla, Director (Infra), Ministry of Finance, and on the basis of the reply and documents received at Ministry of Finance from DOT vide letter dated 13.12.2007. (illegible) Ms. Shyamala Shukla, Director (Infra) put up a note on 17.12.2007 (Page 57/N). At page 61/N is a note sheet wherein the agenda regarding Full Telecom Commission meeting dated 7.12.2007 has been put up. Pricing of spectrum was not an agenda item for this meeting. Later, a meeting of the Telecom Commission was also scheduled for 9.1.2008, wherein pricing of spectrum was an agenda item. However, this meeting was rescheduled by DOT to 15.01.2008. The details in this regard are at page 62/N. On 10.01.2008, 122 LOIs were issued by the Department of Telecommunications and the entire circumstances changed. The option of auction, which we had been pursuing as a method of pricing spectrum became no longer feasible, as DOT said that the entities given LOIs were contractually entitled to entry level spectrum. Thereafter, since auction of spectrum was no longer possible, our focus shifted to ensuring that the financial interests of the Govt. were not further compromised. I have seen the internal note of the Department of Economic Affairs dated 11.02.2008 (pages 448/C). This note was with regard to the 2G spectrum only as mentioned in para 7 of the note. The discussions with DOT were also happening on the revision of spectrum usage charges and a proposed revised spectrum usage

charges is mentioned in para 11 of the note. As mentioned in the para 12 of the note, MoF and DoT had agreed on this revision. Para 22 to 25 of the note discuss the issue of Price Determination based on growth in AGR/MHz between 2003-04 and 2007-08. The note says that DOT estimates indicate that AGR/MHz had increased by 3.5 times between 2003-04 and 2007-08. On this basis the price of the spectrum works out to be Rs. 1312 Crore per MHz. These Paras are reproduced herein22. A simple single indicator of the growth in telecom (illegible) in a given circles is the AGR/MHz aggregated across all operators in that circle. We can estimate the number of times (multiple) the aggregate AGR/MHz grew in each circle between 2003/04 and 2007-08. The reference price embedded in the entry fee for each circle can be multiplied by this multiple. 23. Assume a pan-India operator, operating across all the 23 circles in the country. A rough estimate made by DoT shows that across the country, AGR/MHz has increased by 3.5 times between 2003/04 and 2007/08. So, the operator will be charged Rs 1312 crores (Rs .375 crore x 3.5) for allocation of 1 MHz of spectrum for operation on a pan-India basis. Since most operators operate only in some of the circles, this price determination can be done on a circlespecific basis. 24. This price determined as above should be charged on both existing and new operators. Those who do not choose to pay should be asked to surrender the spectrum allocated to them.

25. If spectrum is not auctioned but priced as above, allocation of spectrum will continue to have to be linked to the subscriber base. Prior to these paras there is a discussion on various other alternatives, including auction and indexing to inflation. The auction was ruled out in view of it being an extreme measure, having significant practical and legal implications in view of the circumstances then. The indexing to inflation was ruled out as it does not reflect the phenomenal change in technology and business models during the intervening years. Thereafter, in the aforementioned paras 22-25, the indexing on the basis of AGR/MHz was proposed. These matters were discussed with DoT and, as per para 28 the DoT was of the view that it was not advisable to price the start-up allocation of 4.4 MHz, as the new entrants who were given licenses in January 2008 paid the entry fee on the understanding that they would get this start-up spectrum without any further charge and pricing start-up spectrum would be a breach of this understanding and may disturb the level playing field and also trigger litigation. DOT suggested differentiated pricing of spectrum, to which Ministry of Finance differed. These issues are mentioned in the paras 28-31 of the note. These issues were to be further decided and these issues were mentioned in pare 33. These issues were discussed further with DOT, and the details are mentioned in the note dated 7.04.2008 at page 499 of the file. DoT wanted the pricing of spectrum to be deferred till auction of 3G and WiMax. Ministry of Finance did not prima facie agree with this as per this note. Accordingly a letter dated 08.04.2008 (Page 501/C) was issued by Sh. Govind Mohan, Director, Dept. of Expenditure to Secretary (Telecom) wherein it was mentioned that the issues that needed to be decided in respect of 2G spectrum were discussed by Finance Secretary in three rounds of meetings with

Secretary

(Telecom).

In

February,

2008

and

following

amendments were specifically suggested in the Pricing of Spectrum, its allotment among Access providers and spectrum usage charges:From the note of Sh Govind Mohan at page 504-505 I note that we decided, with the approval of the Finance Minister, that the note for CCEA be used as an opportunity to raise basic issues of pricing of spectrum for the entire range of spectrum under commercial use. The details of the deliberation during January, 2008 to April, 2008 on these issues are also mentioned in this note, and copies of relevant documents are enclosed at pages 506 to 528. On these issues there was discussion between the Finance Minister and Minister of Communications & IT also on 30.01.2008, the notes / details regarding which are at pages 530 to 533. Thereafter, vide a letter dated 8.2.2008 (Page 534/C) the Secretary (Telecom) forwarded an approach paper regarding spectrum charges which are at pages 535 to 539, and covers most of the issues mentioned above. Annexure to this paper at page 539 contains the calculation of multiplication factor regarding AGR/MHz w.r.t 2003-04 to 2007-08, which has been mentioned as '3.457550198'. RO&AC Before me Sd/5.3.2011 (Vivek Priyadarshi) Addl. Supdt of Police CBI, ACB, New Delhi

F.NO. 3/11/2011-Inf (Part) Ministry of Finance Department of Economic Affairs New Delhi, March 25, 2011 Office Memorandum Sub: Allegations and pricing of 2G spectrum A copy of basic facts prepared on allocation and pricing of 2G spectrum is enclosed. 2. This has been seen by the Finance Minister.

Sd/25.3.11 (Dr. P.G.S. Rao) Dy. Director Infrastructure and Investment Division

Ms. Vini Mahajan Joint Secretary Prime Ministers Office South Block New Delhi 110001

Chronology of basic facts related to pricing and allocation of 2G spectrum Facts of the case: 1. Based on the decision of the United Cabinet dated October 31, 2003 guidelines for the Unified Access Service (UAS) were issued on November 11, 2003 which allowed for UAS licenses to provide basic and /or cellular licenses using any technology in the defined service area. 2. The Union Cabinet had authorised DoT to finalize with the

approval of the Minister in charge, the details of implementation of the UASL regime, including the calculation of the entry fee depending upon the date of payment based on the principles given by TRAI in its recommendations. In the context of the release of adequate spectrum needed for the growth of the telecom sector, the Union Cabinet in October, 2003 had decided that the Department of Telecommunication and Ministry of Finance would discuss and finalise spectrum pricing formulae which would include incentive for efficient use of spectrum as well as disincentive for sub optimal usage. 3. The license fee for UAS licenses was reduced by 2% across

the board, with a further reduction by 2% of AGR for the first two cellular licenses (for a period of 4 years with effect from April 01, 2004) in order to spur investment and growth, and ultimately yield more revenue to Government. The financial implication of the proposal was estimated at Rs.968 crores for the first four years and Rs.885 crore per annum thereafter. The proposal to the above effect, initiated by the then Minister of Communications and Information Technology (Shri Arun Shourie) was approved by the then Minster of Finance (Shri Jaswant Singh) on December 12, 2003 without any examination as regards financial implications.

4.

TRAI in its recommendations dated May 13, 2005 has

indicated that in the existing licensing framework entry fee includes onetime spectrum charge. TRAI recommended that as in the existing framework the spectrum charges would have two components: one time spectrum charge and annual spectrum charge. It was recommended that there should be no one time spectrum charges for allocation of IMT 2000 spectrum to the existing service providers. As regards the new entrants, the onetime spectrum charges would be equal to UASL entry fee in that service area minus the component of registration charge based on the entry fee paid by new BSO (entered in /after 2001) specified by TRAI in its recommendations on Unified licensing regime dated January 13, 2005. TRAI also recommended that the existing method of annual spectrum charge in terms of percentage of revenue share should continue. 5. In response to the TRAI recommendations dated May 13,

2005, DEA as per relevant notings and in letter December 21, 2005 to DoT indicated that, for allocation of additional spectrum while price discovery through auction may not be appropriate, the hybrid option of a base fee, combined with revenue share, appears to be the most appropriate. It was also recommended by DEA that the issues should be put up for appropriate decision by the Committee of Secretaries (CoS) and thereafter, by a Group of Ministers (GoM). DEA did not question the methodology suggested by TRAI on issues of one time and annual spectrum charges. 6. The thrust of the Union Cabinet decision of October 31, 2003

in regard to spectrum pricing was for MoF and DoT to . discuss and finalise spectrum pricing formula, which will include incentive for efficient use of spectrum as well as disincentive for sub optimal usages... Though there was no basic disagreement between the two Departments on the basic thrust of the TRAI

recommendations on pricing in 2005, DEA had advised DOT to take up the matter in CoS and thereafter by a GoM. This was presumably not done by DoT. The matter was also not followed up further by DEA. 7. A Group of Ministers (GoM) was constituted by Cabinet

Secretariat on February 23, 2006 on the issues of vacation of Defence spectrum and raising of resources for the purpose. DEA vide DO letter dated March 28, 2007 asked DoT to include issue relating to spectrum pricing within the ambit of GoM. It was however, not specifically communicated whether spectrum pricing meant only spectrum usage charges or entry fee and spectrum usage charges. The view of DoT was that the spectrum pricing is within the normal work carried out by that Ministry as indicated in their letter dated April 02, 2007. In a DO letter dated April 19, 2007 to the Cabinet Secretary, Finance Secretary had indicated that since these issues would have economic and financial ramifications they need to be discussed in the GoM. The contention of the DoT that these issues are within the normal work was not entirely correct. It was explained that a sound policy on spectrum allocation and pricing will not only result in optimal utilization of spectrum but would also have revenue implications. Vide OM dated May 17, 2007 Cabinet Secretary advised DEA that Finance Secretary and Secretary (DoT) may discuss for resolving the issue of inclusion of spectrum pricing in the ToR of GoM and advise the Cabinet Secretary about the decision taken in the matter. DEA sent an OM to DoT on 18.5.2007 indicating that technology neutrality and spectrum price must be included in the ToR of the GoM. In its letter dated June 06, 2007 Finance Secretary requested Secretary DoT to include spectrum pricing in the ToR for the GoM. It was also said that the methodology to be followed by the spectrum pricing would logically follow the vacation of spectrum which is the main task of GoM. A view was taken in DEA then that the matter may be resolved through

correspondence failing which meeting with DoT could be held. In its letter dated June 15, 2007 on the subject DoT indicated that since spectrum pricing and charges for the use of spectrum is a dynamic issue it is to be reviewed and considered from time to time in the context of the changing technology and international best practice in consultation with TRAI. Thus DoT precluded the role of MoF if any, in finalizing spectrum pricing. This letter however, does not appear to have been received and processed on the file of DEA. Thereafter, DEA did not take up the issue further either with the DoT or with the Cabinet Secretariat. A chronology of events is enclosed at Annex-I. 8. DEA explicitly took up the issue of fixation of entry fee on

November 22, 2007. In the context of the three crossover licenses for CDMA operators issued by DoT, DEA had argued that it is not clear how the rate of Rs. 1600 crore determined as far back as in 2001, has been applied for a license given in 2007 without any indexation, let alone current valuation. It was also said that all further action to implement the said licensed may be stayed. While the intent of DEA was to settle this issue in a generic sense for all licenses, the letter itself referred only to the crossover licenses. In response, DoT vide their letter dated November 29, 2007 indicated that the decision to allot the dual technology licences at the 2001 entry fee was justified on account of the decisions taken in the Cabinet meeting held on October 31, 2003 and TRAI recommendations dated August 28, 2007. (The TRAI recommendation of August, 2007 was not placed before the Full Telecom Commission). This was also not further responded to by DEA. No follow up appears to have been done from DEA/DoT as per the available records. 9. As a response to the DoT letter dated November 29, 2007

the then Director (Infra) initiated a note highlighting the need to revise the entry fee. This note dated December 17, 2008 while it

was marked to Joint Secretary (on tour)/Additional Secretary (Economic Affairs or AS-EA) does not seem to have been put to the next level of consideration. Records also indicate that the then AS (EA) put up on 9.1.2008 in a separate file a comprehensive concept paper on the extant telecom sector policy. The subject header of the note mentioned the reference of the DEA letter of November 22, 2007 and the DoT reply of November 29, 2007. The note recommended both revision of the entry fee fixed in 2003 as well as adoption of an auction methodology for determination of the spectrum usage charges. The position paper was prefaced with a note of the then AS(EA) dated January 09, 2008 which inter alia mentioned that she had been directed to attend the meeting of the full Telecom Commission which had been scheduled to be held on January 09, 2008 and had now been postponed to January 15, 2008. This position paper was used by the then FM as a basis of his secret note to the Prime Minister on January 15, 2008 wherein an auction basis mechanism was recommended for future allocation of spectrum (beyond the start up spectrum) with the spectrum allocations having been made in the past to be treated as a closed chapter. The recommendation was in the context of spectrum usage charges and not with regard to the entry fee. 10. A Full Telecom Commission meeting took place on January

15, 2008. One of the agenda item was pricing of spectrum. However, it only included annual spectrum charge (revenue share) and not the entry fee. MoF representative who attended the meeting did not raise the issue of revision of entry fee. 11. The conclusions arising from the paras 9 and 10 ante can

be summarized as follows: the DoT response of November 29, 2007 was brought to the notice of the then Finance Minister on 9.1.08 alongwith suggestions to argue for the revision of the entry fee and adoption for auction with spectrum usage charges as the

bid parameter the fact that a Telecom Commission meeting on the issue was scheduled on January 15, 2008 was also mentioned; no response however, was sent by DEA to DoT either on the issues raised by DoT in the communication dated November 29, 2007 or with reference to the impending meeting of the Telecom Commission no intervention on entry fee were suggested in the meeting by DEA representative and finally a note was sent by the then Finance Minster to the Prime Minister on January 15, 2008 wherein auction of spectrum was argued. The licenses allotted in 2007 and 2008 only carried the start up spectrum embedded with them. The note of the Finance Minister did not deal with the need, if any to revise entry fee or the rate of revenue share. The issue of revision of entry fee was taken up by the MoF subsequently in November 11, 2008. 12. Subsequently in a meeting held on January 30, 2008

between the then Ministers of Finance and Telecommunications it was noted by the then Finance Minister that he was for now not seeking to revisit the current regimes for entry fee or revenue share. 13. Secretary DoT formally wrote to DEA on February 8, 2008

enclosing an approach paper wherein DoT proposed to price allocation of spectrum beyond 4.4. MHz and enhancement of spectrum usage charge. It is indicated in the approach note that Secretary (Finance) was of opinion that auctioning is legally possible for allotment of spectrum of 4.4 MHz. DoT indicated that as 4.4 MHz is a part of the license agreement no spectrum acquisition charge is supposed to be levied. The approach paper states that even if it is priced, it will also disturb the level playing field and the present Lol holders who have already paid entry fee are likely to go for litigation. Initial entry fee for license may be construed as the de facto price of initial spectrum ie. Rs.1650 crore for pan India license. Based on the DoT letter, an internal

note on the subject was prepared in DEA on February 11, 2008 wherein the entire range of spectrum was proposed to be charged for both new and old operators, using the entry fee as the price of embedded spectrum and indexing it with the increase in the AGR of the telecom sector between 2003-04 and 2007-08. The note also ruled out the option of auctioning spectrum for various reasons explained therein. A note for discussion was put up by the Finance Secretary on April 7, 2008 outlining the proposals in respect of both 2G and 3G spectrum bands. After subsequent discussion with the DoT and in response to a draft note for Cabinet of DoT for finance approval for creation of the Air Force Network (AFNET), DoT were informed with the approval of the FM on April 08, 2008 that all allotments for spectrum, beyond 4.4 MHz be specifically priced and charged for and the spectrum usage charges may be calibrated with regard to the circle specific scarcity value of spectrum instead of basing it on bandwidth as has been the practice. The then Finance Minister sent a non paper to the then Minister of Telecommunication on April 21, 2008 conveying that an in-principle decision may be taken to price the spectrum beyond 4.4 MHz, as had been suggested by DoT. 14. In a meeting between the then Finance Secretary and

Secretary DoT on April 24, 2008 DEA adopted the following position: spectrum usage charge may be linked to circle specific scarcity value; spectrum upto 6.2 MHz may not be priced and spectrum beyond 6.2 MHz may be priced using the base price of Rs 375 crores per MHz indexed to growth in Adjusted Gross Revenue (AGR) with reference to the year 2003-04. In subsequent meeting DEA presented its stand that spectrum usage charge may be revised as a percentage of AGR; spectrum upto 6.2 MHz may not be priced and spectrum beyond 6.2 MHz may be priced using the base price of Rs.266 crore per MHz indexed to growth in Gross Domestic Product (GDP) with reference to the year 200304. This position was thereafter communicated to DoT vide DO

letter dated June 27, 2008 of the then AS (EA). Further meetings were held between the then Finance Minister and the Minister of Telecom on May 29, 2008 and June 12, 2008. Subsequently in a meeting held under the Chair of the Prime Minister on July 4, 2008 (as recorded in the record of the then Finance Minister dated July 6, 2008) the then Finance Minister and Minister of Telecommunication agreed to proposals on enhancement of spectrum usage charge and pricing of spectrum based on indexing the base price Rs.266 crore per MHz and compounding using SBI PLR from existing allottees of spectrum beyond 6.2 MHz. However, the issue of revision of entry fee was not discussed in the meeting. 15. A meeting of the Telecom Commission was convened on

November 11, 2008 to discuss the issues relating to one time spectrum charge and spectrum usage charge. Approval of the then FM was taken on the same line as had been agreed to in the PMO meeting on July 4, 2008. The enhancement of spectrum usage charge was expected to yield revenue of Rs 4,149 crores annually, an increase of Rs.1270 crores over the annual revenue yield (Rs. 3000 crores) on the current rate structure. However, in addition DoT were also asked vide OM dated November 11, 2008 to suggest a mechanism for updating the entry fee of Rs.1658 crore (fixed in 2003-04) for all allotments of license after January 1, 2009. Thus MoF raised the issue of updating the entry fee albeit only for the licenses allotted after January 1, 2009. Thus MoF implicitly agreed to imposition of same entry fee as that prevailing in 2001 for license allotted upto December 31, 2008. 16. It is therefore, clear that there were consultations between

MoF and DoT in the first half of 2008 on the formula for charging 2G spectrum based on indexation to the PLR of the SBI, which related only to the allocations beyond 6.2 MHz. In the matter presently under consideration (i.e. allotment of 2G license in 2007-

08) spectrum allocation were not made beyond 6.2 MHz on the pricing of which DOT and MoF were in agreement. On the other hand the new licensees have only got 4.4 MHz of the spectrum each. 17. Secretary (Finance) had suggested to go for auction for

initial spectrum of 4.4 MHz in early February 2008. DoT was not keen to do the same since it had said that it will disturb the level playing field and the present Lol holders who had already paid entry fee were likely to go for litigation. DoT opined that 4.4 MHz is a part of the license agreement and initial entry fee for license may be construed as the de facto price of the initial spectrum. There was a way out by invoking clause 5.1of the UAS license, which inter alia provide for modification at any time the terms and conditions of the license, if in the opinion of the Licensor it is necessary or expedient to do so in public interest of the security of state or for the proper conduct of the telegraphs. DoT would have invoked this clause for cancelling licenses in case MoF had stuck to the stand of auctioning the 4.4 MHz spectrum. Perhaps some litigation would have arisen as a consequence. It may be mentioned that while the UAS licenses were signed between February 27 and March 07, 2008 spectrum allocation were done starting only in April 2008 almost 4 months after the Lols were issued. However, these were not charged (beyond the normal spectrum usage charge) since there was consensus at the levels of the Ministers concerned, that spectrum beyond the start up levels only should be charged. 18. Detailed replies on the issues raised by the Members of the

PAC during the oral evidence of the Finance Secretary were sent to the Lok Sabha Secretariat on July 21, 2010. Comments on the Department of Economic Affairs of the Draft performance audit report on the issue of license and allocation of 2G spectrum were sent to the Director General of Audit on August 11, 2010. These

were put up for the first time to the FM for information when copies of these were forwarded to the Cabinet Secretary under intimation to the Prime Ministers office (PMO) on January 05, 2011.

Annex-I Exchange of correspondence on the issues relating to spectrum pricing being a part of the GoM Sl 1. Date February 23, 2006 2. February 28 Item Cabinet Secretariat issued a notification for constitution of GoM on vacation of spectrum etc. (including the issue of spectrum pricing) Minister in charge of DoT (then) wrote to Prime

and Minister for deletion of the issue of spectrum GoM and to restrict the ambit of the GoM to

November pricing from the term of reference (ToR) of the 16, 2006 3. 4. 5. vacation of spectrum. December Cabinet Secretariat issued revised ToR deleting 07, 2006 the issue of spectrum pricing March 28, FS wrote to Secretary (DoT) for inclusion of 2007 April 2007 spectrum pricing in the TOR of GoM. 02, Secretary (DoT) wrote to Finance Secretary stating that spectrum pricing is within the normal work carried out by his Ministry and ToRs have been amended following the then Ministers 6. April 2007 letter to the Prime Minister. 19, Finance Secretary wrote to Cabinet Secretary for inclusion of spectrum pricing in the TOR of the GOM. In the DO letter the Finance Secretary had indicated that since these issues would have economic and financial ramifications we 7. May 2007 feel that they need to be discussed in GoM. 17, Cabinet Secretariat replied to the Finance Secretary suggesting that Finance Secretary and Secretary (DoT) may discuss for resolving the issue and advise the Cabinet Secretariat 8. May 2007 about the decision taken in the matter. 18, DEA sent an OM to DOT on 18.5.2007 indicating that technology neutrality and spectrum price must be included in the TOR of

9.

June 2007

the GoM. 06, Finance Secretary wrote to Secretary (DoT) for reconsideration of inclusion of the issue of spectrum pricing in the TOR of the GoM. 15, DoT informed the Ministry of Finance that the issue of spectrum pricing and charges for the use of spectrum is a dynamic issue. It depends inter alia on the region type of telecom services, band of spectrum used. It is to be considered from time to time in consultation with TRAI. This was not received in the DEA as per DEAs records.

10.

June 2007

List of correspondence between PMO and Ministry of Finance on 2G spectrum / license matter from April 2004 onwards S.No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. Details Department of Economic Affairs letter dated 13.6.2005 Prime Ministers Office ID dated 29.7.2005 Prime Ministers Office ID dated 16.8.2005 Prime Ministers Office ID dated 26.8.2005 Prime Ministers Office ID dated 2.9.2005 Prime Ministers Office ID dated 14.1.2006 Finance Minister Office ID dated 15.1.2008 Prime Ministers Office ID dated 10.6.2008 Department of Economic Affairs note dated 4.7.2008 Prime Ministers Office ID dated 8.7.2008 Prime Ministers Office ID dated 24.7.2008 Prime Ministers Office ID dated12.8.2008 Department of Economic Affairs OM dated 14.8.2008 Prime Ministers Office ID dated 3.9.2008 Prime Ministers Office endorsement dated 8.10.2008 Department of Economic Affairs OM dated 13.10.2008 Prime Ministers Office ID dated 29.10.2008 Department of Economic Affairs OM dated 3.11.2008 Prime Ministers Office ID dated 25.11.2008 Prime Ministers Office endorsement dated 1.12.2008 Department of Economic Affairs OM dated 25.3.2011

Extracts of Order dated 04.02.2012

(2G Spectrum Cases), NEW DELHI. CC No. 01(A)/11 Dr. Subramanian Swamy Vs. A. Raja & others Present: Complainant Dr. Subramanian Swamy in person with Sh. Tarun Goomber, Mrs. (Dr.) Roxna Swamy and Sh. P. N. Mago Advocates. ORDER:This order shall dispose of plea of the complainant for summoning Sh. P. Chidambaram, the then Finance Minister, as an accused in this case. 41. Hence, it is prayed that this Court, being Special Judge, under the Prevention of Corruption Act [1988] may: (a) take Cognizance u/s 5(1) of the Prevention of Corruption Act, 1988 r/w the Criminal Procedure Code, and to set into motion prosecution proceedings against accused A. Raja, for the offences under Sections 13(1) (d) and (e) of the Prevention of Corruption Act, 1988; (b) appoint the Complainant as Prosecutor u/s 5(3) of the Prevention of Corruption Act, 1988; (c) Direct the CBI, the ED and other prosecuting agencies of the Government to assist the Complainant in conducting the case after cognizance is taken; (d) Keeping in view the facts, events and circumstances stated herein above, take cognizance/ summon/ try and punish accused A. Raja, in accordance with law, in the interest of justice; 46. I may add that the complaint did not contain any allegations against Mr. P. Chidambaram, as is clear from a bare reading of

the facts, extracted above in detail. Similarly, no evidence was initially led by complainant against Mr. P. Chidambaram, when he examined himself on 07.01.2011. However, on 15.09.2011, the complainant filed an application under Section 311 CrPC for summoning/ recalling of witnesses for examination on behalf of the complainant and in that application only allegations were levelled against Mr. P. Chidambaram. The said application was allowed vide order dated 08.12.2011 and thereafter, the complainant examined himself on 17.12.2011 and 07.01.2012. He has not examined any other witness in support of the allegations in the complaint. 47. I have deliberately extracted the allegations in the complaint and evidence on oath in detail to make things clear and understandable. 48. I have heard the arguments at the bar in detail and have carefully gone through the file. 59. A bare perusal of the allegations and the evidence, led in support thereof, reveals that neither are there any allegations nor is evidence against Mr. P. Chidambaram to the effect that he played any role in the subversion of the process of issuance of letters of intent (LOI), UAS Licences and allocation of spectrum in the years 2007-08. The subversion of the process of issuance of letters of intent, UAS Licences and allocation of spectrum included arbitrary fixation of the cut-off date, filing and procuring of applications for UAS Licences on behalf of ineligible companies, violation of first-come first-served policy in the issuance of LOIs, UAS Licences and allocation of spectrum and payment and receipt of bribe. All these incriminating acts were allegedly done by the Minister/ officials of Department of Telecommunications, Ministry of Information and Broadcasting, Government of India and by private persons.

60. Now the question arises as to what is the role of Mr. P. Chidambaram. The acts attributed to him by the complainant are, his complicity in fixing the price of the spectrum licence at 2001 level and permitting two companies, which received the licence, namely, Swan and Unitech, to dilute their shares even before rollout of their services. 61. However, both of these acts, attributed to him, are not per se illegal or violative of any law. He agreed with Mr. A. Raja not to revise or revisit the entry fee or spectrum charge as discovered in 2001. Non-revision of prices is not an illegal act by itself. The competent authority is always at liberty to decide in its discretion to not to revise the prices or fee for any goods or services. The same entry fee/ spectrum charges continued even after 2007-08. Same is the case with dilution of equity by a company. It is not per se illegal nor was it prohibited at the relevant time. However, such acts may acquire criminal colour/ overtones when done with criminal intent. 62. The case of the complainant is that Mr. P. Chidambaram consented to non-revision of entry fee/ spectrum charges and dilution of equity by the companies as he was in criminal conspiracy with A. Raja. It is further his case that dilution of equity was a ruse to transfer UAS Licence at a premium and thereby earn undeserved profit. In this regard, he has invited my attention to the charges framed against accused A. Raja and other accused, wherein these two facts have also been mentioned. 63. However, I may add that these two acts find mention in the charge for the reason that these acts were accompanied by further acts of subverting the established policy and procedure for grant of UAS Licences and the payment and receipt of bribe by other accused, who stand charged and are facing trial.

64. The crucial questions are: (i) Whether entry fee for the UAS Licences and the price of spectrum was jointly determined by Mr. A. Raja and Mr. P. Chidambaram? (ii) Whether they have deliberately fixed a low entry fee, discovered in 2001 auction, for spectrum licences? (iii) Whether Mr. P. Chidambaram deliberately allowed dilution of equity by the two companies, that is, Swan Telecom (P) Limited and Unitech Wireless (Tamil Nadu) Limited? (iv) If so, whether these facts prima facie show criminal culpability of Mr. P. Chidamabaram also alongwith Mr. A. Raja? (v) Whether there is any material on record to show criminal culpability of Mr. P. Chidambaram? 65. In a case of criminal conspiracy, the Court has to see whether two persons are independently pursuing the same end or they are acting together in pursuit of an unlawful act. One may be acting innocently and other may be actuated by criminal intention. Innocuous, inadvertent or innocent acts do not make one party to the conspiracy. 66. As per Cabinet note dated 31.10.2003, the decision regarding spectrum pricing was to be taken by Finance Minister and MOC&IT and after this decision was taken, Mr. P. Chidambaram agreed that it would be the price as discovered in the year 2001 and also told Mr. A. Raja that there is no need to revisit the same. This decision was subsequently conveyed to the Honble Prime Minister also. To that extent, there is material on record. 67. However, there is no material on record to show that Mr. P. Chidambaram was acting malafide in fixing the price of spectrum at the 2001 level or in permitting dilution of equity by the two companies. These two acts are not per se illegal and there is no

further material on record to show any other incriminating act on the part of Mr. P. Chidambaram. A decision taken by a public servant does not become criminal for simple reason that it has caused loss to the public exchequer or resulted in pecuniary advantage to others. Merely attending meetings and taking decisions therein is not a criminal act. It must have the taint of use of corrupt or illegal means or abuse of his official position by public servant for obtaining pecuniary advantage by him for himself or for any other person or obtaining of pecuniary advantage by him without any public interest. There is no material on record to suggest that Mr. Chidambaram was acting with such corrupt or illegal motives or was in abuse of his official position, while consenting to the two decisions. There is no evidence that he obtained any pecuniary advantage without any public interest. I may add that there is such incriminating material against other accused persons, who stand charged and are facing trial. 68. There is no evidence on record to suggest that there was an agreement between him and Mr. A. Raja to subvert telecom policy and obtain pecuniary advantage for himself or for any other person. There is no evidence of any substantive act being committed by him. A bit of evidence here and a bit there does not constitute prima facie evidence for showing prima facie existence of a criminal conspiracy. Anybody and everybody associated with a decision in any degree cannot be roped as an accused. The role played by the decision maker, circumstances in which the decision was taken and the intention of the decision maker are the relevant facts. Intention is to be inferred from the facts and circumstances of the case. One cannot be held guilty merely by association with a decision and a decision by itself does not indicate criminality. There must be something more than mere association. Innocent and innocuous acts done in association with others do not make one a partner in crime, unless there is material to indicate otherwise, which is lacking in this case.

69. In the end, Mr. P. Chidambaram was party to only two decisions, that is, keeping the spectrum prices at 2001 level and dilution of equity by the two companies. These two acts are not per se criminal. In the absence of any other incriminating act on his part, it cannot be said that he was prima facie party to the criminal conspiracy. There is no evidence on record that he was acting in pursuit to the criminal conspiracy, while being party to the two decisions regarding non-revision of the spectrum pricing and dilution of equity by the two companies. 70. Accordingly, I do not find any sufficient ground for proceeding against Mr. P. Chidambaram. The plea is without any merit and the same is dismissed. Announced in open Court, today on February 04, 2012.

Sd/(O. P. SAINI) Spl. Judge/ CBI(04)(2G Spectrum Cases)/ND

February 16, 2012

Chidambaram may not be out of 2G thicket yet

Shalini Singh In this News Analysis, Shalini Singh says a long-drawn legal battle is likely ahead. Last week, the Congress party celebrated CBI Judge O.P. Saini's decision rejecting a petition that demanded Union Home Minister P. Chidambaram be named an accused in the 2G spectrum case. But a deeper reading of the judge's order, as well as of case documents with The Hindu, suggests those celebrations may be premature. While letting Mr. Chidambaram off the hook, Judge Saini categorically states that he was a party to two critical decisions taken by jailed ex-Telecom Minister A. Raja. This, paradoxically, draws the Union Home Minister even deeper into the 2G vortex. Saini contradicts Chidambaram For months now, Congress crisis managers and Mr. Chidambaram himself have been insisting that he had, as Finance Minister, opposed Mr. Raja's plans to give away spectrum in 2008 at 2001 prices. Simply put, their argument is that Mr. Raja acted alone. In October 2011, Mr. Chidambaram told India Today magazine: Even after the 121 letters of intent were issued on January 10, 2008, the Ministry of Finance continued to argue that auction was legally possible, explored alternatives to auctions in view of DoT's objections and suggested updating the entry fee, adopting one of two methods that would yield an additional Rs. 3,028 crore or Rs.

3,400 crore per licence which could be charged up front when the licensee applied for additional spectrum beyond the start-up spectrum. Yet, while exonerating Mr. Chidambaram, Judge Saini, in his February 4 Order, arrived at just the opposite conclusion: that he [Mr. Chidambaram] agreed with Raja not to revise or revisit the entry fee or spectrum charge as discovered in 2001. [Emphasis added]. The contradictions go deeper. Judge Saini's conclusion supports the Prime Minister, who, on February 24, 2011, told the Rajya Sabha that the two ministers had agreed on spectrum pricing. If there is indeed an agreement, when was it struck and is it on the files?

New questions on Swan, Unitech profits Judge Saini also finds that, In the end, Mr. P. Chidambaram was party to only two decisions, that is keeping the spectrum prices at 2001 levels and dilution of equity by the two companies. Concluding in the Home Minister's favour, he held: These two acts are not per se criminal. However, the Supreme Court does not treat the Swan and Unitech transactions as mere equity dilution or capital infusion. Instead, it affirms that the Swan and Unitech transactions were windfall gains, stating: This becomes clear from the fact that soon after obtaining the licences, some of the beneficiaries offloaded their stakes to others in the name of transfer of equity or infusion of fresh capital by foreign companies and thereby made huge profits.

Official documents from JanuaryMay 2008 in the possession of The Hindu show that the government anticipated huge spectrum-linked valuations and profits by way of rent seeking behaviour of companies involved in such M&A's, well in advance of the Swan/Unitech deals. In fact, within 20 days of the scam, in a meeting between Mr. Chidambaram and Mr. Raja on January 30, 2008, and attended by the Finance and DoT secretaries, it was agreed that these entities should be valued and the government must recover its share of premiums arising from trade in spectrum. Against this backdrop, Judge Saini's finding that Mr. Chidambaram was party to the dilution of equity by the two companies raises a key question: Why did the Finance Ministry not insist the government get its share of the premium from the Swan and Unitech transactions, despite the huge profits being earned by the promoters? Official memos, minutes of meetings, letters and internal notes with The Hindu written on February 8, 11, April 7, 8, 16, 21, 24 and May 28, 2008 reveal that while Finance Ministry officials initially fought Mr. Raja's illegal moves, they later progressively diluted their stance. The Ministry first insisted that all spectrum including start-up spectrum can legally be auctioned. It then capitulated to the DoT's arguments, allowing 4.4 MHz of start-up spectrum to be given without any price revision. Not stopping at this, it then went on to concede up to 6.2 MHz of spectrum at the 2001 price. The new documents reveal, but fail to explain why the Finance Ministry softened its stand in 2008, from January 10, the day of the scam itself, by backing off on market pricing for spectrum. This softening extended from the time the licences were issued in

February/March, down to April, when the new M&A guidelines were announced and spectrum allocation began, all the way till September/October 2008, when Swan and Unitech finally offloaded their equity for a huge profit. Each successive dilution by the Finance Ministry meant that North Block was acquiescing to additional hits to legitimate government revenue. Other questions also arise from the contentious Office

Memorandum from the Finance Ministry to the PMO of March 25, 2011 which shows the Finance Ministry first standing up to Mr. Raja and then backing off, only to later, on November 11, 2008 again seek revision of entry fee for all future licences given after January, 2009. The Finance Ministry's special accommodation only for spectrum awarded by Mr. Raja is unexplained. This document has been attacked for inaccuracies by Congress representatives in the JPC on 2G but the government has so far failed to explain its contents, save for a short statement from Pranab Mukherjee distancing himself from the inferences drawn. The contradictions between Judge Saini's Order, the public positions taken by Mr. Chidambaram and the Prime Minister, the Supreme Court verdict, and the revelations arising from these new documents all seem to suggest a long-drawn legal battle likely lies ahead.

February 18, 2012

Never any 'agreement' with Raja not to revise entry fee

Union Minister of Home Affairs P. Chidambaram responds to the report Chidambaram may not be out of 2G thicket yet, that was published in The Hindu on February 16, 2012: Your correspondent appears to have missed the crucial point that proceedings under section 200 of the CrPC are exparte proceedings. In proceedings under section 200 CrPC, at the initial stage, there is no opposite party or defendant. The Judge will examine the complainant and the evidence that the complainant may produce. Such evidence is usually selective, self-serving and only what may support the case of the complainant. That is what happened in this case too. Nevertheless, the Special Judge found no merit in the complaint and dismissed it. The observations in the order of the Special Judge must be understood in the context that the proceedings were ex-parte proceedings. However, since your correspondent has interpreted the order of the Special Judge as well as some other documents, I wish to place a few facts so that the record will be complete. The two acts attributed to me by the complainant were (i) allegedly agreeing to non-revision of the entry fee and (ii) allegedly permitting two companies to issue new shares to foreign investors. The relevant facts are as follows (and they are in the public domain):

(i) On the entry fee charged for the LoIs issued on 10.1.2008, the Supreme Court in its judgment dated 2.2.2012 in WP No.423 of 2010 has concluded that the Department of Telecommunications (DoT) ignored the concerns raised from various quarters including the Prime Minister, Ministry of Finance and also some of its own officers. The Supreme Court has also concluded that as the Minister of C&IT was very much conscious of the fact that the Secretary, Finance had objected to the allocation of 2G spectrum at the rates fixed in 2001, he did not consult the Finance Minister or the officers of the Finance Ministry. The Supreme Court has also noted that the meeting of the full Telecom Commission scheduled to be held on 9.1.2008 was postponed by the DoT and the LoIs were issued on 10.1.2008. Thus, it will be clear that the LoIs were issued on 10.1.2008 without the knowledge of the Ministry of Finance. What happened after 10.1.2008 is a matter of record. After 10.1.2008, notes and discussion papers were exchanged between the Ministry of Finance and the DoT during January to April, 2008. These discussion papers reflect the consistent stand of the Ministry of Finance that auction was the best method to discover the price and it was legally possible to do so. However, DoT declined to accept this view. Hence, various alternatives were explored to raise additional revenue. The final discussion paper that was prepared by Secretary, Finance and Secretary, DoT was considered at a high-level meeting on 4.7.2008. Decisions taken at that meeting were the decisions of the government. One of the decisions was to revise and update the entry fee by adopting one of two methods (GDP growth rate or SBI PLR) and to charge the said amount upfront when the licencee applied for additional spectrum. This decision would apply to all licencees who had been allocated spectrum up to 31.3.2008, including the 122 licencees. The decisions are recorded there was in the minutes any dated 6.7.2008. Therefore, never agreement

between the Minister of C&IT and me not to revise the entry fee. On the contrary, a decision was taken by government at the high-level meeting on 4.7.2008 to revise and update the entry fee. (ii) Regarding issue of fresh shares by the two Indian companies to their foreign investors, the FDI policy allowed up to 49 per cent equity under the automatic route. The records will show that until I demitted office as Finance Minister on 30.11.2008, the position was that M/s. Telenor had subscribed to new shares amounting to 33.50 per cent of the equity of the Indian company through the automatic route and M/s. Etisalat had subscribed to new shares amounting to 44.73 per cent of the equity of the Indian company through the automatic route. The funds brought in by the foreign investors accrued to the companies and not to the promoters. There was no question of the Finance Minister permitting the Indian companies to issue fresh shares to their foreign investors. No such permission was required and no such permission was given. Shalini Singh, Deputy Editor, The Hindu, responds: (i) I am aware that Section 200 CrPC proceedings are ex parte and no contrary claim has been made by me. The article compares Judge Saini's order with Mr. Chidambaram's public statements (obviously made outside the court) and notes how Judge Saini's observation that Mr. Chidambaram agreed with Raja not to revise or revisit the entry fee or spectrum charge as discovered in 2001 runs contrary to Mr. Chidambaram's public position. As does the Prime Minister's statement in the Rajya Sabha on February 24, 2011, which I had also referred to, wherein he had said: The two ministers had agreed on this [i.e. pricing of spectrum] because of legacy considerations and I accepted their recommendations. This is the agreement I spoke about when I

asked, If there is indeed an agreement, when was it struck and is it on the files? (ii) On the issue of offloading of equity, my article pointed out that the government failed to charge its share of premium from the huge profits earned by firms in case of M&As, which had been specifically agreed and documented in notes, including during his own meeting with Mr. Raja on January 30, 2008. Mr. Chidambaram does not contest my claim but notes that no permission was required and no such permission was given by the Finance Minister in the context of the Swan/Unitech M&As as they were within the automatic approval limit of 49 per cent for FDI in telecom. In fact, my article never alluded to the word permission or suggested that the same was given by the Finance Minister. I simply questioned why the government never got a share of the premium from the profits made (in the face of documented agreements).