Indian 2G Spectrum Scam: Crony Capitalism on Display?

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Case Details:

Case Code : BECG118
Case Length : 23 Pages
Period : 2007-2011
Organization : Companies operating in the Indian telecom sector
Pub Date : 2011
Teaching Note : Available(11 Pages)
Countries : India
Industry : Telecom

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"The impressive economic growth numbers hide an extremely dysfunctional and skewed economic model. On the one hand, we have governments with wide administrative discretion, little oversight, and huge budget. On the other hand, entrepreneurs and companies act as proxies of politicians. This combination, if allowed to grow unfettered, represents a clear and present danger to the whole concept of Indian democracy and free markets."¹

- SRajeev Chandrasekhar, an independent member of Indian Parliament and a former telecom entrepreneur, in 2010.

Introduction

The Indian telecom sector had witnessed unparalleled growth since the dawn of the new millennium, attracting the attention of Indian as well as global telecom companies². However, in early 2011, several Indian telecom companies were under the scanner for alleged irregularities in grant of licenses³ and spectrum⁴ allocation. In January 2011, The Supreme Court of India⁵ issued notices to 11 private telecom companies on charges that they had been granted licenses despite allegedly being ineligible to secure telecom licenses as per regulations or had failed to roll out services within a stipulated time-frame as per regulatory obligations. The telecom companies which were issued notices were Videocon, Loop Telecom, Dishnet Wireless, S-Tel, Uninor, Allianz

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Infra, Tata Teleservices , Sistema Shyam Teleservices, Idea Cellular, Etisalat (Swan), and Vodafone-Essar. Earlier, in November 2010, the Telecom Regulatory Authority of India (TRAI) had recommended that the government cancel 69 out of the 122 licenses issued during 2008 on the same reasons. The 69 licenses of five companies recommended for cancellation were 20 licenses of Loop Telecom, 15 of Etisalat DB, 11 of Sistema, 10 licenses of Videocon, 8 of Uninor, and 5 licenses of Aircel.

Introduction cont.... - Next Page>>

1] Rama Lakshmi, "Corruption Scandals in India Fuel Fears of Crony Capitalism," www.washingtonpost.com, December 17, 2010
2] Ayush Kanwar, " Boom in the Indian Telecom Sector Here to Stay," http://theviewspaper.net, January 15, 2010
3] The Indian Telecom Sector is divided into 23 Service Areas (commonly called circles) consisting of 19 state telecom circles and 4 metro service areas for providing Unified Access Services (UAS). Operators need to procure a separate license from the government to operate in each service area or circle.
4]Radio spectrum (Spectrum), a part of the atmosphere that transmits electromagnetic waves, enables transmission of all types of wireless signals. Spectrum is used to transmit all signals including satellite, radar, mobile, and fixed telecommunications and broadcasting. Usually spectrum is divided into electromagnetic frequency scale and each scale is used for a specific purpose. Spectrum being a finite resource and vital for communications, government controls its usage by allocating each lode for specific transmission purposes. In this way, some part of it is allocated to commercial mobile communications, which in turn is allocated to mobile carriers based on certain criteria.
5]The Supreme Court of India is the highest judicial body of India.

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