The Mukesh Ambani-promoted Reliance Jio Infocomm, the only pan-India LTE operator, has finally started feeling the heat as CAG suggests cancellation of its 4G license.

CAG says Infotel Broadband Services (Reliance Jio Infocomm) has allegedly rigged the BWA spectrum auction and violated rules four years ago, PTI reported.

The draft report is a major set back to Reliance Industries because the company is the final stages of planning its 4G launch. Reliance Jio is planning to unveil 4G using both TD-LTE and FD-LTE technology. The report also shows lack of transparency in decision making by Indian government officials.

Indian telecom operators like Bharti Airtel, Aircel etc, which hold BWA license, felt that the presence of billionaire Mukesh Ambani during the spectrum auction in 2010. Though there was no proper devices and adequate eco-system were available to launch 4G LTE services, BWA spectrum was acquired for Rs 12,847 crore by Infotel Broadband Services.

In 2010, the discussions among telecom operators centered on launching WiMax services using BWA spectrum. The main point to note here is that 2010 auction did not assist any of the license holders to make money. Airtel is currently struggling to make money from its limited launch, Aircel is yet to unveil 4G and Reliance Jio will introduce in 2015.

The draft CAG report, according to an article in EconomyLead.com, says Indian telecom department in 2010 failed to recognize the rigging of the auction right from beginning of the BWA spectrum auction in which a small ISP, Infotel Broadband Services (IBSPL) emerged winner of pan-India broadband spectrum by paying 5,000 times of its net worth.

“There is no final CAG report that we are aware of. That said we reject any suggestion whereby spectrum was acquired in any manner other than through a transparent bidding process duly supervised by Government of India,” RIL said.

Interestingly, transfer or sale of BWA license after winning the spectrum was permitted as per the BWA spectrum auction guidelines. On the other hand, when 2G licensee holders sold their license and made huge money for their spectrum, it raised question mark.

CAG report on Reliance Jio

CAG says IBSPL, ranked 150th in the list of ISPs, submitted an earnest money deposit of Rs 252.50 crore through the covert and overt assistance of third party / private bank, bid for Rs 12,847.77 crore (5000 times of its net worth) for pan-India spectrum and then sold the company on the day of completion of the auction.

This indicated IBSPL’s collusion and sharing of the confidential information with a third party in violation of auction conditions, said CAG.

RIL spokesperson said that as per NIA bidders were required to submit Bank Guarantee for desired amount as Earnest Money Deposit (EMD) along with its application.

“EMD was based on specific deposit requirement for each telecom circle. Accordingly Infotel Broadband Services Pvt Ltd (IBSPL) submitted a Bank Guarantee of Rs 253 crore in format as prescribed in NIA. Since no money was deposited as EMD, the question of source of deposit does not arise,” RIL spokesperson said.

According to CAG, due to inclusion of inadequate eligibility criterion for participation in the auction, the promoters of the IBSPL enriched themselves and made unfair gain.

CAG rejected DoT response that the eligibility criterion for participation in the auction was finalized after due diligence and on sector regulator TRAI’s recommendations saying it was department’s responsibility to ensure that only serious ISPs participated in the auction.

DoT in its response admitted that there was no eligibility criterion with respect to minimum net worth or paid up capital for participation in the auction.

The inter-ministerial committee did not satisfy itself as to how the IBSPL, a company with a net worth of Rs 2.5 crore, would be able to pay the bid amount of Rs 12,847.77 crore within ten days.

CAG recommendations

CAG said that the government should get the matter investigated at this juncture, fix responsibilities on the bidders, which violated the auction conditions/rules prescribed and cancel the allotment of the BWA spectrum along with exemplary punishment on the colluding firms.

The CAG estimated that decision of government to allow Internet service providers license holder having BWA spectrum to provide voice services against payment of Rs 1,658 crore resulted in undue advantage worth Rs 22,842 crore to Reliance Jio Infocomm.

DoT said the spectrum auction rules allowed all kind of telecom operators to participate in auction and there were no inherent limitation in providing voice service using BWA spectrum.

The BWA auction rules gave option to participants to procure BWA spectrum under UASL against payment of Rs 1,658 crore as paid by other operators but there was no guarantee of giving them initial spectrum as was given to incumbents.

CAG has rejected logic of DoT saying that auction guidelines linking of BWA spectrum with UASL is unfair and highly inappropriate.

Mahendra Nahata, chairman of HFCL, the parent firm of IBSPL, denied allegation and said “No confidential information was ever conveyed to anybody.”

The CAG has also indicted telecom regulator TRAI for not giving clear recommendation and remaining a passive observer when changes were made in its suggestion to reduce quantum of spectrum in auction.