The DPC Act 1971 specifies the entities which come within the audit purview of CAG. However, the audit scope and extent, the methodology and approach to be adopted by the CAG in conducting the audit of these entities, is the discretion of the CAG.

The audit done by CAG is broadly classified into Regularity Audit and Performance Audit. While conducting regularity (financial) audit and other types of audit when applicable, auditors analyse the financial statement to establish whether acceptable accounting standards for financial reporting and disclosure are complied with. Performance Audit assesses the extent of achievement of three ‘Es’ – Economy, Efficiency and Effectiveness.

• Economy occurs where equal-quantity resources are acquired at least cost.
• Efficiency exists where the input is at minimum level for any given quantity and quality of output.
• Effectiveness addresses the issue whether the scheme, programme or organisation has achieved its objectives. In short, Performance Audit is to ascertain that Government programmes have achieved the desired objectives at lowest cost and given the intended benefits.

The National Telecom Policy 1999 introduced a new regime of revenue sharing under which the operators shared their revenue with the Government in the form of annual licence fee and spectrum charges. In November 2003 a policy was framed based on the recommendations of TRAI and approved by the Cabinet, to bring out a uniformed licensing regime. The implementation of this new regime was to be completed in two phases. The first phase was to cover the migration of already existing Basic Service Operators (BSOs) and Cellular Mobile Service Operators (CMSOs) to the new regime. The entry fee for migration of BSOs was determined to be that which was paid by the fourth cellular operator introduced through multi-stage bidding process in 2001. CMSOs were not required to pay any entry fee as they had already entered the market through a bidding process and thus paid a market determined price. The second phase was to start after the first phase for granting licences to the new operators with nominal licence fee and the spectrum being charged separately.

In January 2008, Department of Telecommunications (DOT) issued 120 new licences for unified access service on the same day. These licences were issued at a price which had been discovered in 2001. DOT allotted spectrum to the existing operators beyond contracted limits without imposing any upfront charge for such allotment. Based on the recommendations of TRAI, the decision for the use of dual/alternate technology was taken for the first time by the DOT on 17 October 2007 without referring the matter to the full Telecom Commission, even when it involved allocation of spectrum in 2007 at the 2001 price.

Having passed over six years since the introduction of Unified Access Services (UAS) regime, the CAG decided to review the entire process of issue of licences, award of spectrum and the implementation of the UAS regime introduced in 2003. The aim of review was not to question the policy of Unified Access Service Licence (UASL) formulated by the Government but to examine in depth the implementation of such policy. The CAG, after giving rebuttals to the arguments put forth by the Ministry to the various issues raised during the course of audit and after discussions, has brought out the following facts in his Performance Audit Report:

• The decision to continue to charge entry fee at 2001 level even from the new licensees under UAS regime in 2003 was not deliberated either in TRAI or Telecom Commission or Group of Ministers or Cabinet.
• As envisaged in NTP- 99, a policy to ensure optimal utilisation of spectrum and a method to discover its market price was not considered and the 2G spectrum was not allocated at its correct market value.
• The difference of opinion between the Minister of Communication & Information Technology and the Minister of Law and Justice regarding referring the matter to an Empowered Group of Ministers remained unresolved and the DOT went ahead with the processing of large number of applications without deciding on the issue of legal tenability raised by them.
• DOT did not follow its own guidelines on eligibility conditions, arbitrarily changed the cut off date for receipt of applications post facto and altered the conditions of First cum First Served procedure at crucial junctures without valid and cogent reasons which gave unfair advantage to certain companies over others.
• DOT did not examine with due diligence the applications submitted for the UAS licences, leading to the grant of 85 out of 122 licences to the ineligible applicants.
• Owners of these licences, obtained at unbelievably low price have in turn sold significant stakes in their companies to the Indian/foreign companies at high premium within a short period of time. The premium earned by these new entrants to the telecom sector was nothing but the true value of the spectrum. Based on this premise, the Report reveals, the cost of a pan India licence could be a value between Rs.7758 crore to 9100 crore. However, the DOT issued pan India licences at Rs.1658 crore
• CAG in his Report has explicitly stated that the correct value of 2G spectrum allotted to 122 licences in 2008 and the 35 licences under dual technology, also in 2008, could be determined only by a market driven process. In addition, the value of additional spectrum allotted beyond the contractual amount to existing operators has also to be worked out in the same manner. However, based on various available indicators detailed in his Report, different presumptive value of spectrum was worked out and the resultant potential loss in crore was accordingly computed to be in the rage of 67364 to 176645.
• A day prior to the announcement of Dual Technology in October 2007, 3 operators were given in-principle approval by DOT, which gave the perception of discrimination against other players in the field.

The Report concludes stating, Audit confirms that the entire implementation process does not withstand the test of scrutiny, and hence, the widely held belief that it has benefitted a few operators and has not been able to maximise generation of revenue from allocation of such a scarce resource. The Report also makes it clear that the loss to the national exchequer in the allocation of 2G spectrum cannot be denied though the amount of loss could be debated.

Though the CAG submits many Reports every year to the President which are caused to be laid before Parliament/Legislatures of States, this Performance Audi Report of CAG has drawn more attention of the Media, Parliament and members of civil society not mainly because of amount of loss of revenue to the exchequer revealed in the Report but because of the cause which has led to the said loss. The swinging needle of suspicion regrettably points out that illegal benefits derived by those at the helm have been the factor to the resultant loss to Government. Thus, it is not the quantum of loss but the question of integrity that has drawn more importance.