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CAG has also named 13 companies, including Reliance Communications’ front company, Swan Telecom, and real estate major Unitech, citing several deficiencies in their applications. One key deficiency was that they did not meet the eligibility criteria for bidding.
Many of these companies were registered for conducting unrelated business activity like real estate. Most of them had also submitted false certificates -- issued by their company secretaries -- about the extent of their paid-up capital, CAG said in its report made public on Tuesday.
Prominent companies named in the report included Unitech Infrastructure, Unitech Builders & Estates, Azare Properties, Hudson Properties, Nahan Properties, Adonis Project, Aska Projects, Volga Properties (all belonging to the same group), Shipping Stop Dotcom (presently Loop Telecom), Allianz Infratech (merged with Etisalat DB Telecom), Datacom Solutions (presently Videocon Telecommunications), S Tel, Swan Telecom Private (presently Etisalat DB Telecom).
“The government can forfeit the entire amount and cancel all licences based on the findings of this report,” RP Singh, director-general of audit for post and telecommunications, told Financial Chronicle. He was responding to questions on possible government action after this report.
“Owners of these licences, obtained at unbelievably low prices, have in turn sold significant stakes in their companies to Indian or foreign companies at high premiums within a short period of time. The premium earned by these new entrants to the telecom sector was nothing but the true value of spectrum, which should have normally accrued to the public exchequer. Since these companies did not meet the eligibility criteria set by the department of telecommunications (DoT) on the date of their application, their applications should have been rejected and they should have been asked to apply afresh as stipulated in the unified access service (UAS) licence guidelines,” the CAG report said.
About its findings on Swan Telecom, CAG said, “It would appear that Swan Telecom while applying for a UAS licence in 13 service areas was acting as a front company on behalf of Reliance Telecom and their application was in effect against the intent and spirit of UAS licensing guidelines,” it said.
The report pointed to Reliance Communications’ backing of Swan which was favoured for allocation of spectrum in the Punjab circle by keeping out Idea Cellular, which was placed second on the priority list. This was an undue advantage given to Swan by DoT.
In the Maharashtra circle, too, DoT favoured Swan Telecom over Spice Communications. In both cases, Spice Telecom’s proposed merger with Idea Cellular was cited as the reason for granting the licence to Swan. By doing so, DoT flouted its own first-come-first-served policy.
The report said that undue UAS benefits were provided to three companies -- Reliance Communications (in 20 service areas), Shyam Telelink (in Rajasthan) and HFCL Infotel (in the Punjab circle).
A combination of technologies (CDMA, GSM or any other) under the same licence was not permitted and DoT had not acceded to their requests for such combinations till April 2007. But based on recommendations of the Telecom Regulatory Authority of India (Trai), a decision for use of alternate technology was taken for the first time by DoT on October 17 of the same year. DoT communicated this in a press release two days later.
‘In principle’ approval for using dual or alternate technology was given to the three operators on October 18, a day before the press release, the CAG report said, pointing to the undue haste in granting the approvals. It said that even after the press release, when Tata Teleservices also applied for dual technology, approval was not granted till January 2008.
In one case, “audit further found that the basic claim of a paid-up capital of Rs 110 crore was itself false, as the authorised share capital of the company concerned as on the date of the application (March 2, 2007) was Rs 4 crore only,” the report said.
It noted that an email id of hari.nair@relianceada.com was cited as the authorised contact person for Swan telecom, though the company secretary, Hari Nair, had certified that Tigers Traders and the Indian Telecom Infrastructure Fund were not part of the Reliance ADA group.
Doubts were raised in the report about the total stake of Reliance Telecom in Swan Telecom. This was about Rs 1,003 crore, as against the Rs 98 crore equity holding of the so-called majority holder, Tiger Traders.
Reacting to the report, a Reliance Communications spokesperson stated: “Our group had no shareholding in Swan Telecom (now known as Etisalat DB) at the time of grant of licence to them or any time thereafter, and that issue is accordingly not relevant to our company. Reliance Communications has always been in full compliance with all applicable laws, rules and regulations, and there has been no violation of our licence conditions at any stage on account of cross-holdings in excess of 10 per cent.”
The report spoke of excess spectrum allocated beyond the upper limit to nine operators. Among the nine, Bharti Airtel was allotted an additional spectrum of 32.4 mhz for the 13 circles it had applied for. According to the report, Vodafone too had got 19.6 mhz of additional spectrum. “The value of spectrum held by these operators beyond the contracted unit worked out to Rs 2,561 crore, though its market value on date would be higher,” the CAG report said.
Of the other companies mentioned in the report, six newly incorporated applicants belonged to the Unitech group, which under the brand name Uninor had submitted applications and suppressed the fact of conditional certification in their memorandums of association.
This, the report said, was a “fraudulent act with mala fide intentions of obtaining licences for 20 service areas by misleading DoT”. Unitech declined comment on the matter, but its foreign partner Telenor global CEO Jon Fredik Baksaas earlier this week had said his company would cooperate with investigating agencies. He had also said that his company had not been directly approached by anyone in India since the entire matter was relevant only to the Indian partner.
Datacom Solutions, later renamed Videocon Telecommunications, made a false claim of a paid-up capital of Rs 150 crore, when its authorised capital was only Rs 1 lakh, as was shown in papers submitted along with its application. Videocon too declined to comment on the matter.
Shipping Stop Dotcom India, which renamed itself Loop Telecom, also had made a patently false claim of a paid-up capital of Rs 130.65 crore. Audit found that the company had deposited statutory stamp duties of only Rs 18.87 lakh for increasing the authorised capital from Rs 5.20 crore to Rs 131 crore on September 25, 2007.
“Loop Telecom was eligible for UAS licence and met all the required guidelines. It has disclosed all facts to regulators and is fully compliant with all norms and regulations,” a Loop Telecom spokesperson said.
S Tel, with an authorised capital of Rs 10 lakh, applied for six licences, claiming a paid-up capital of Rs 18 crore. CAG contested these claims because the registrar of companies had not even registered the company’s special resolution approving the increase.
The report noted that suggestions of the prime minister regarding the low spectrum prices paid and calling for a review of all allocations were not acted upon. This, despite the prime minister’s office advising spectrum price discovery through a fair and transparent auction or a revised entry fee.
It said that the telecom minister had arbitrarily decided to issue the letters of intent (LoIs) simultaneously to all applicants between March 2006 and September 25, 2007. “Thereafter the importance of the date of submission of application in the first-come-first-served policy was altogether removed by giving precedence to the date of compliance with the LoIs,” the report said, casting aspersions on the minister.
About the impact of the CAG report, Com First India director Mahesh Uppal, said, “I think CAG has confirmed what was known all along. I am not surprised at all. A decisive action, including scrapping of some of these licences, should be the next big step if one were to restore the rule of law in the telecom sector. This step would instil confidence in investors and send a strong message that arbitrary action would no longer govern the sector.
Shobhit Agarwal, principal telecom analyst at Protiviti Consulting, said, “It would be unfair to blame just the companies. It is for the gatekeeper to weed out ineligible applicants. Action against companies must only happen if there is a proven nexus between a company and the person responsible for awarding licence. Cancellation is no solution. Instead, companies should be asked to pay up the difference to ensure a level-playing field for all.”
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