2G Scam

2 G scam is amongst one of the biggest scams in Indian history which was also ranked as second in the list of “top 10 abuse of power”, by Times magazine in 2011. The scam caused a loss of more than 1.75 lakhs crore to Indian Government. Here, we will explain you how was the scam of this size happened.

This scam is linked to telecom sector and for understanding the scam, it is necessary to understand few techniques and terms used in this sector.

What is spectrum and what is its use in telecom?

All types of telecommunication system requires certain amount of electromagnetic bandwidth to operate. Bandwidth is the range of frequencies that make up a signal that transmits communication such as voice, picture, data etc. These electromagnetic bandwidths are also called as Spectrum. Each geographical region in the world has electromagnetic bandwidths available as a natural resource, and they are limited in number. Since these spectrum are the basic resource upon which entire telecom system works, acquiring of sufficient units of spectrum is a necessity for telecom companies to provide its services.

What is 2G? 2G, which basically stands for 2^nd generation telecommunication network uses different bandwidth of spectrum, which enable the system to provide additional communication medium such as SMS and quality of communication compared to 1G earlier. Thus for each type of telecommunication service separate band of electromagnetic signals are required.

How is spectrum allocated and regulated in India? Since spectrum is a natural resource, like many other country, in India, all spectrum is owned by the Government. Government then decide to provide these spectrum to relevant companies who can use it for provide telecom facilities to its population.

Department of Telecommunications (DoT) in India usually conducts auctions of spectrum in India. Those buying the spectrum are given license for using it for telecommunication services. These licenses are called Unified Access Services (UAS) licenses and company getting these license can use spectrum to provide all kinds of telecommunication services such as phone calls, sms, TV, internet etc.

India is divided into 23 service areas for providing UAS. A company obtaining license for UAS in any area is free to provide services within their area only.

After understanding the relevant basics of telecommunication system in India, let us now understand what happened in 2G scam.

What happened in 2G scam?

The basic scam was that, in year 2007, department of Telecom under Government of India, allocated the 2G spectrum to companies at much lower prices which resulted in an estimated loss of 1.76 lakhs crore to Indian Government.

In 2007 122 new 2G – UAS licenses were issued to telecom companies at the price that was fixed in year 2001. The criteria used were first come first serve. Reasons given by the department was that giving spectrum at cheaper price would result in cheaper mobile services for the population. Also, cheaper spectrum coupled with first come first serve will enable new and upcoming companies to compete in this market, which eventually will drive up the quality and reduce the price.

However, several companies that acquired spectrum at lower prices used it to raise the price of their shares multiple times and then sold their shares to bigger players in telecom. Thus indirectly, the spectrum was obtained by bigger companies at much higher price (in ways of shares), than was initially allocated by DoT. This defeated both the purposes of DoT, i.e. cheaper mobile services to population and increasing competition in telecom market.

Who benefitted? From above brief of scam it is obvious that loss was incurred by government (indirectly by people of India), as, if they had allocated the spectrum at higher prices, they could have made much more money. But instead, middle companies who acquired spectrum and then sold their shares to bigger companies made all the money from spectrum allocation.

But there are lots of individuals also who are alleged to have made money in this case by means of bribe. Investigation found several flaws in the entire process of spectrum allocation and it indicates that people in power deliberately did this to benefit some companies and they in-turn may have received kickbacks. Most important people who were alleged are

1.       A. Raja: He was union minister for communication and information technology from 2007 to 2009. He has been alleged to have taken Rs. 3000 crore as bribe to facilitate this scandal. He chose to ignore several recommendations from TRAI, Finance ministry, law ministry and even from prime minister and instead of auctioning, ordered for allocation of 2G spectrum at 2001 price. He also moved the deadline for application by companies from 1 October, 2007 to 25 September, 2007, without putting a transparent notice so that some selected companies only can be allocated the spectrum.

2.       Shahid Balwa: He through his company called SWAN, which has no experience in telecom, obtained 2G spectrum license. It later sold its shares at much higher rates to a middle east company Etisalat.

3.       Kanimozhi: She is an MP of DMK and daughter of Karunnanidhi. She worked with A. Raja to get Shahid Balwa (Promoter of Swan telecom) to invest Rs. 200 crore in her TV channel called “Kalaignagar TV”. Balwa had done this as he has received favour from A. Raja in obtaining the spectrum

4.       Neera Radia: There are suspicions that Neera Radia mediated between corporate world and Congress party to put A.Raja as minister for telecom. The money was paid by companies to Neera Radia for doing this job, who efficiently got this done. A.Raja was then supposed to return the favour to these companies who helped him in getting this post.

Besides these several bureaucrats and executives were also involved in this scandal.

What is the current status of the case?

License of all companies who were allocated 2G spectrum has been cancelled by supreme court. A.Raja was arrested in February 2011 but obtained bail in May, 2012. After that his trial is under way in special CBI court. Kanimozhi was also arrested and later obtained bail. Her case is also underway. Neera Radia was not arrested but was only questioned. Most of the other executives also who were arrested are on bail.