India Auditor Says State Lost $31 Billion Rupees in Mobile Airwaves Sale

India’s federal treasury may have lost as much as 1.4 trillion rupees ($31 billion) in revenue after telecommunications airwaves were sold below market rates two years ago, the government’s auditor said.

The Indian government collected only 123.9 billion rupees from the sale of the so-called second-generation wireless spectrum to companies, the Comptroller and Auditor General of India said in a report submitted to parliament in New Delhi today. The airwaves were sold in 2008.

In contrast, India raised 677.2 billion rupees selling third-generation wireless airwaves in May. Phone companies in Europe paid more than $100 billion for similar high-speed spectrum in auctions across the continent in 2000.

Andimuthu Raja, resigned on Nov. 14 as the nation’s telecommunications minister after a year-long investigation into the sale of the wireless spectrum. The Central Bureau of Investigation has been examining the role Raja and the Ministry of Communications had in the pricing of the permits since October last year while the Supreme Court has been hearing public interest petitions on the subject.

The auditor calculated the maximum estimated loss based on the prices at which the third-generation airwaves were sold in May. Based on another model, the under-pricing of 2G spectrum led to a loss of 535.2 billion rupees, according to the report.

‘Jump the Queue’

The department of telecommunications failed to consider applications on a “first come, first serve” basis, the auditor said, allowing some applicants to “jump the queue.” The process by which the department issued the permits, called Universal Access Service, or UAS, licenses, “lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner,” according to the report.

The department issued 122 new licenses to use 2G spectrum in 2008, according to the report. Eighty-five of the licenses were given to “ineligible” recipients.

Companies including Unitech Ltd., Tata Teleservices Ltd., Shyam Telelink Ltd., now known as Sistema Shyam Teleservices Ltd., and Swan Telecom Ltd., now known as Etisalat DB Telecom Pvt., sold stakes in their wireless ventures at significant premiums to the price they paid for spectrum, the auditor said. Telenor ASA spent 61.2 billion rupees for buying a 67.25 percent stake in its venture with Unitech, the auditor said.

‘Fraudulent Means’

“These companies, created barely months ago, deliberately suppressed facts, disclosed incomplete information, submitted fictitious documents and used fraudulent means for getting UAS licenses and thereby access to spectrum,” according to the report. Owners of the licenses, “obtained at unbelievably low price, have in turn sold significant stakes in their companies to Indian or foreign companies at high premium.”

The auditor’s report is “based on incorrect footings” and is “erroneous,” Shahid Balwa, Mumbai-based vice chairman of Etisalat DB, said in an e-mail today. “We shall be putting out a detailed explanation to the concerned authorities, which more than adequately clarifies the company’s position.”

Rajeev Narayan, a spokesman for Mumbai-based Tata Teleservices, declined to comment. Tanuja Kehar, a spokeswoman for New Delhi-based Unitech, and Viraj Chouhan, a Gurgaon, India-based spokesman for Sistema Shyam, didn’t immediately respond to e-mails seeking comment.