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CAG's report: Anil Ambani group got undue benefits
November, 18th 2010

The report issued by CAG on the 2G spectrum allocation indicates that it was the Anil Dhirubhai Ambani Group (ADAG) that benefited the most from the arbitrary and unfair manner in which licences were given in 2008.

The CAG has found that Mr. Ambani's companies were given undue advantage over other players in at least three ways: first, the fact that Swan Telecom (now Etisalat DB Telecom), one of the 2G beneficiaries, appeared to have been acting as a front company for ADAG's Reliance Telecom was ignored by the Department of Telecom; second, it got the spectrum before others in the queue; and third, Reliance Communications was favoured in the spectrum allocation while getting access to a dual technology licence for offering both CDMA and GSM services.

After reviewing the shareholder pattern and other details of the successful 2G applicants, the report concluded that it would therefore appear that Swan Telecom Private Ltd., while applying for the UAS licences in 13 service areas, was acting as a front company on behalf of RTL, and their application was, in effect, against the intent and spirit of the UAS licensing guidelines.

In its application, Swan Telecom had said it was jointly owned by Tiger Traders Pvt. Ltd., with a stake just under 90 per cent, with Reliance Telecom owning 10.71 per cent.

The CAG report said the fact that RTL's share was above 10 per cent was a violation of the official cross-holding norms barring promoters who already offer a service in an area from owning more than 10 per cent of another operator in the same area. The report also said the fact that the total equity stake of RTL in Swan was Rs.1002.79 crore, against the majority partner Tiger Traders' equity holding of Rs.98.22 crore, raises doubts about the intention of RTL and the control it would exercise in a new company incorporated barely a few months ago.

The CAG also pointed out that the e-mail address of the corporate as well as registered office of Swan Telecom Pvt. Ltd was shown as, and the same e-mail ID was also given for the correspondence address and the authorised contact person of the applicant company.

Since Swan Telecom failed to meet the eligibility criteria on the date of application, the DoT should have rejected its papers and sought a fresh application. But instead of following the first come-first served policy in letter and in spirit, it favoured Swan in the spectrum allocation over others, violating the very norm which Communications Minister A. Raja repeatedly said he was following.

Notably, Swan sold a 45 per cent stake in September 2008 to the UAE-based telecom firm, Etisalat, for $900 million.

In the case of access to dual technology, the CAG found that three CDMA operators, including Reliance Communications, had applied for permission to use GSM technology in 2006. This was not allowed at that time owing to the lack of any policy on the issue.

However, the Reliance application for dual technology was processed on October 18, 2007, though the DoT made the policy announcement only a day later. Its rival, Tata Teleservices, which was the first to apply for the use of dual technology after the policy was announced, was placed lower in priority, and is still to get the GSM spectrum in all circles, while Reliance Communications was given the spectrum.

The process followed by the DoT while introducing access to dual technology to the existing telecom operators lacked transparency and fairness. Equal opportunity was denied to other similarly placed operators who could apply for the use of dual technology only after the formal announcement of the policy, the report said.

The other companies identified by the CAG as having benefited from the unfair and arbitrary award of spectrum were the Unitech group (brand name Uninor), Shipping Stop Dot Com (India) Pvt. Ltd. (later changed to Loop Telecom), Datacom Solutions Pvt. Ltd (later changed to Videocon Telecommunications Ltd.) and S Tel Ltd.

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