As the millennium approached, the spread of wireless telephony radically altered India’s telecom landscape. Millions of subscribers waiting months for landlines skipped them altogether. As in much of the developing world, most Indians now only own mobiles.

The government realized that private companies would help bring communication to rural India, where the government hadn’t established landline networks. In the late 1990s, several mobile phone operators entered the market, considerably reducing call and equipment charges.

To regulate this new market, parliament passed 1997’s Telecom Regulatory Authority of India (TRAI) Act. A governor and four members, political appointees, run TRAI. 

The National Telecom Policy, 1994, noted India’s poor teledensity (0.8) — the ratio of telephone connections to every 100 people. This was far lower than the world average of 10 and even neighboring Pakistan, which boasted 2 per 100. Despite opening the email and mobile phone sectors to private investment in 1992, more work remained. Even after TRAI's introduction, mobile service providers struggled to find their feet. The business still wasn’t viable as high rates kept mobile phones out of reach of most people. Then, the National Telecom Policy 1999 pushed for an investor-friendly license system. As telephone and broadcasting converged, service providers would only apply for one, not multiple licenses. To foster competition, encourage efficient use of the spectrum and maximize revenue, they decided to separately auction off different service areas. Licenses in Delhi, for instance, would cost more than licenses in Chennai. These policies ostensibly guided TRAI’s interventions over the past decade.  

But as 2008’s 2-G Spectrum scam proved, good intentions weren't enough.  TRAI hit the headlines after the illegal sale of telecom licenses in January 2008. Then telecommunications minister A Raja, in conjunction with cronies in the telecommunications ministry and corporate executives, awarded 122 telecom licenses in one day based on 2001 prices (as opposed to the more expensive 2008 prices).  Those licenses were then sold on the open market at a profit, robbing the public coffers of revenue thought to be between Rs. 2,645 crore ($480 million USD) and Rs. 1.76 lakh crore ($32.5 billion USD).

In consultation with service providers, TRAI enacts and updates telecom regulations. It also enforces existing regulations on tariffs, interconnectivity between service providers, quality of service, customer care and acquisitions. After the TRAI act's amendment in 2000, a new body called the Telecom Disputes Settlement & Appellate Tribunal (TDSAT) began settling disputes between service providers and customers. A retired Supreme Court judge heads TDSAT.  In 2004, broadcasting services came under TRAI's purview. In 2012, TRAI began expediting the digitization of Indian television. It also oversees the sale of spectrum and other concessions like digital TV.

Attached Bodies

The Telecom Commission

The Telecom Commission formulates polices, oversees licensing, manages spectrum, and guides research and development. It also monitors public sector units such as Bharat Sanchar Nigam Limited (BSNL) and Indian Telephone Industries Limited. A secretary from the Department of Telecom heads the commission.

Four additional secretaries from Telecom handle finance, production, services and technology. The commission also has secretaries from the Ministry of Finance, the Planning Commission, the Department of Information Technology and the Department of Industrial Policy and Promotion. 

Telecom Enforcement, Resource and Monitoring (TERM) Cells

With 34 cells nationwide, TERM performs ground level regulatory tasks like ensuring compliance with licensing agreements, verifying documents of customers, coordinating between different service operators in the area, carrying out lawful interception and monitoring of calls, and taking over the network during emergency. TERM cells also monitors cell phone towers to ensure safe levels of electric and magnetic field (EMF) radiation. When TERM cells were first introduced in 2004, there were called Vigilance Telecom Monitoring (VTM) Cells.

In the fiscal year 2010-2011, establishment expenses accounted for Rs. 12.95 crore ($2.35 million USD). These expenses comprised salaries, allowances and other benefits to employees. Administrative expenses totaled Rs. 20.66 crore ($3.75 million USD), half of which went to paying “rent, rates and taxes;” “professional charges” took up Rs. 2.87 crore ($521, 000 USD). Less than half of this amount was spent on travel and conveyance. “Capacity building” cost TRAI Rs. 7.32 crore ($1.33 million USD).

TRAI’s ambiguous 2G spectrum scam report

The sale of 2G spectrum in January 2008 at 2001 prices in an opaque, first-come-first-served manner came to be known as the 2G scam. Then telecom minister Andimuthu Raja, telecom secretary Siddharth Behura and the heads of the companies that bought the licenses spent several months behind bars. They were accused of securing the deals for companies for below market value in return for kickbacks. But exactly how much was stolen remains unclear. The Comptroller and Auditor General estimated losses of Rs. 1.76 lakh crore ($32.5 billion USD). The new telecom minister Kapil Sibal, though, played it down, even claiming there was zero loss. TRAI refused to take a stand. They estimated a loss of Rs. 3046.61 crore ($553 million USD) in a report to the investigating agency, the Central Bureau of Investigation (CBI), while also noting in a letter accompanying the report, that the loss could be zero. The ambiguity in TRAI’s report took many by surprise, including the CBI and the Supreme Court.

2G Scam Loss: CBI Quizzes Trai for Speaking in Dual Tone (by Raman Kirpal, Firstpost)

2G Scam: SC Questions Trai's Finding On Exchequer Loss (Times of India)

Better Coordination

The 122 2G spectrum licenses sold in 2007 and later cancelled by the Supreme Court came up for auction in November 2012. The response was poor, with only a fraction of the licenses finding buyers and revenues falling well short of the government’s expectation. Kapil Sibal, the minister for telecommunications and information technology, blamed the high reserve prices for the licenses fixed by TRAI, which he said, were still high even after being reduced on the initiative of his ministry. TRAI, on the other hand, said the spectrum, though termed 2G, could be used to deliver services that surpassed the 2G specifications and hence had to be priced accordingly. Observers called for better coordination between the department of telecommunications (policy maker), TRAI (regulator) and the service providers.

‘2G Auction Stresses Need For Better Govt, TRAI Coordination’ (by Krishna Pophale, Business Standard)

India 2G Telecom Auction Falls Short Of Target (BBC News)

2G Auction: Montek Faults High Reserve Price (The Hindu)

Trai Blamed For 2G Auction Failure (by Joji Thomas Philip, Economics Times)

How Much Did the 2G Spectrum Scam Cost Taxpayers?

It is alleged that A. Raja arbitrarily added, changed, and ignored procedures in order to benefit telecommunications companies he favored, even those ineligible for the frequency allotment. An actual auction of the licenses was therefore not possible. The Central Bureau of Investigation (CBI) and the Income Tax Department believe that Raja probably received around Rs. 3,000 crore ($533 million USD) in bribes.

The Comptroller and Auditor General investigated the license issuance process and submitted a strongly critical report in November 2010. The report concluded, “The entire process of allocation of licenses lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner. The CAG alleged that, among other things, Raja deliberately ignored the advice of the Ministry of Law and Justice; refused to adhere to Prime Minister Manmohan Singh’s recommendations; made arbitrary changes to the application process; and issued licenses to ineligible applicants (85 out 122 were deemed ineligible). Perhaps most importantly the report alleged that Raja’s actions cost the government a staggering Rs. 1.76 lakh crore ($31.3 billion USD) in lost revenues. This created a major political backlash. Because of potential losses, the 2G scam is considered to be one of India’s worst corruption cases. The figure, now disputed, has ignited a political debate.

In February 2011, the government established the Joint Parliamentary Committee to Examine Matters Relating to Allocation and Pricing of Telecom Licenses and Spectrum (JPC) to investigate the scandal in detail. The committee invited Vinod Rai, who headed the CAG, to testify. In particular the committee wanted to know how CAG quantified the loss at Rs. 1.76 lakh crore ($32.5 billion USD). Rai has held on to the Rs 1.76 lakh crore figure whereas JPC members as well as outsiders have disputed its accuracy.

The CAG Figure is Inaccurate

A number of different figures have been floated to quantify the true loss. Kabil Sibal, a member of the Congress Party (Raja, a DMK member, was part of the ruling Congress-led coalition), stated outright that “zero loss” occurred. The CBI believes that the loss was Rs. 30,984 crore ($5.5 billion USD). R.P. Singh, then Director General of Audit for the posts and telecommunications sector and lead auditor for the 2G scandal, states that the loss was much lower, around Rs. 2,645 crore ($477.2 million USD). The Telecom Regulatory Authority of India (TRAI) on the other hand maintains that Raja’s transactions in fact earned a profit between Rs. 3,000 crore ($533 million USD) and Rs. 7,000 crore ($1.2 billion USD). The debate over the number arises because CAG calculated the presumptive loss based on disputed factors, particularly the actual 2008 2G prices which remain unknown. Manish Tewari, a Congress MP and member of the JPC, hinted that by subjectively using certain numbers, CAG botched the real loss figure. To make matters worse, he further alleged that in computing the Rs. 1.76 lakh crore number “certain sections within CAG” might be in acting in corporate interests. Headlines Today, a prominent news outlet, alleges political interference in the report. It ran a story that alleges that opposition party (BJP) strongman and Public Account Committee (PAC) chairman Murli Manohar Joshi “took an active interest” in the report, thereby implying that the huge figure is a result of political pressure. JPC also deliberated whether CAG had overstepped its constitutional mandate in calculating this presumptive loss.

What Is 2G-Spectrum Scam? (NDTV)

Performance Audit Report on the Issue of Licenses and Allocation of 2G Spectrum (Comptroller and Auditor General of India)

'A Raja Made Rs 3,000 Cr In Bribes' (by Dhananjay Mahapatra, Times of India)

2G Loss? Govt Gained Over Rs 3,000cr: TRAI (by Dhananjay Mahapatra, Times of India)

House Panel Members Quiz CAG Vinod Rai Over 2G Loss Estimates (NDTV)

The CAG Figure is Accurate

Since first testifying to the JPC in mid-2011, Vinod Rai has ardently defending the initial Rs. 1.76 lakh crore finding. The CAG used three main factors to calculate a range for the lost amount: offers made by other private companies to companies who had been issued the license by Raja; using the 3G value; and the value of shares sold by license beneficiaries. The Rs. 1.76 lakh crore loss is based on the 3G value. In its report, CAG mentions that, according to TRAI, 2G services today are actually offering 2.75G services. TRAI concluded, “It is fair to compare existing 2G systems to 3G systems.” Further, scarcity of airwaves and supply and demand also would have played an important role in an actual auction. These factors, CAG states, make its figure an accurate estimate of the potential loss. Rai has strongly maintained that calculating the presumptive loss was within CAG’s constitutional mandate and also explicitly denied that PAC chairman Joshi influenced the initial report.  In June 2012, the CAG conducted an extensive internal audit on its 2G report and substantiated its claims. It provided evidence for its case by noting that TRAI’s new 2G prices (for 2012) are well above the 3G prices that CAG used (for 2010) in its calculations. It also highlighted the Supreme Court’s decision to rescind the 122 licenses. CAG has received support from opposition and other party members who allege politicization of the scandal. 

Vinod Rai Deposes Before JPC, Stands by 2G Loss Figures of Rs. 1.76 Lakh Crores (India Today)

2G Scam: Auditor Did Not Overstep Mandate, Vinod Rai Tells JPC (Economic Times)

Did PAC Chief Help CAG Peg 2G Loss Figure? (India Today)

'No PAC Influence On Our 2G Report' (NDTV: Video)

After Rigorous Self-Appraisal, CAG Sticks To Its Guns On 2G (by Shalini Singh, The Hindu)

Is The Government's Auditor Becoming a Victim of Politics? (by Tanima Biswas, NDTV)

How another 2G Debacle be Prevented?

Ever since the revelation of irregularities over the sale of 2G spectrum licenses in 2008, the media and opposition party leaders have highlighted the huge loss to the exchequer. The figure of $32.5 billion was the highest among several estimates mentioned in the report prepared by the Comptroller and Auditor General and came in handy to draw attention of the public to the issue. Having been forced to defend itself, the government, on the other hand, said revenue was not its only concern when the licenses went on sale — that expensive licenses would eventually keep the mobile phone services out of reach of a large section of the population.

Government Should Set Prices

Those who accusingly point fingers at the government for the 2G-spectrum debacle ask why they didn’t opt for an auction. They maintain that would have been the most effective way of arriving at market prices. The government sought the view of the Supreme Court’s opinion. The SC ruled that auctions couldn’t be made mandatory for selling rights to natural resources. The court said that there would be other ways to securing and tapping into the natural resources for the public good and that the government was in the best position to make that call.

Supreme Court Ruling Vindicates Govt. Stand: Sibal (The Hindu)

Licenses Should be Auctioned Off

The decision of A Raja and Co to sell the licenses at throwaway rates has left many unconvinced. The CAG report found that this policy benefited many companies that were clearly ineligible to apply for the licenses. Incorporated hastily and specifically for securing these licenses, they played the middlemen, then selling the licenses at market rates to other companies.

Thus, even if Raja and Co had intended to keep the phone services affordable and accessible to the masses, as they claim, the middlemen still resold them at market rate.  If the Supreme Court had not canceled the licenses, Raja and company’s ostensible efforts to keep the prices low for customers would have backfired, with the middlemen gobbling up the theoretical savings and the customers stuck paying market price.

It Wasn’t About Rs 1.76 Lakh Cr: Read What CAG Really Said (by R Jagannathan, Firstpost)

‘My Policy Made Mobile Phone Affordable To Even A Rickshawala’ (Rediff news)

Pradip Baijal (March 24, 2003 – March 21, 2006)

Pradip Baijal headed TRAI from 2003 to 2006. An Agra native, Baijal is a 1966 batch IAS officer of the Madhya Pradesh cadre. He has a degree in mechanical engineering from the University of Roorkee.

Before heading TRAI, he served as secretary at the Ministry of Disinvestment, under Minister Arun Shourie. Later when Shourie became telecom minister, he tapped Baijal to lead TRAI. He is believed to have played a key role in several major government decisions on disinvestment, including selling the government’s stake in Maruti. He even authored a book advocating disinvestment in 2008.

Baijal co-founded a firm with lobbyist Niira Radia that provided consultancy to telecom companies immediately after resigning as head of TRAI, a move that struck many observers as a conflict of interest. Baijal’s association with Radia, later found to be facilitating telecom deals for Reliance and Tatas, led the CBI to raid his house. The FCFB (first-come-first-served) process that A. Raja manipulated to sell the licenses to a select group of firms was allegedly first proposed by Baijal.

Now a private citizen, Baijal serves on the boards of Indian Oil and Nestle India.