How 2G Scam Affected Telecom Sector ?

How 2G Scam Affected  Telecom Sector ?

This is a guest blog by Satyendra Pandit.
The 2G Scam is considered as one of the biggest scams that happened in India during UPA government’s regime after independence. In 2008, during A. Raja’s tenure as telecom minister, 2G spectrum allocation happened on the first come, first serve basis. Telecom ministry issued licenses to 122 telecom companies on above rule. In a CAG report, Vinod Rai pointed that 2G licenses were issued to operators at throwaway prices of 2001, which caused a loss of 1.76 lakh crores to the exchequer. But in January 2008, SC of India cancelled the licenses of 122 awardees companies, holding that the process of allocation was flawed. The SC directed the government that spectrum or any natural resources must be auctioned. Now let us have a closed look at how this scam affected the telecom industry at that time.

  1. Apart from the political blow of UPA government, the sector too went into a tailspin. Licensees went bankrupt, leading to thousands of job being lost.
  2. Consumer services quality went to minimal worst level as the investment in this sector dried up.
  3. It gave a major shock to global foreign companies who came to India to expand their business and in search of a better market. But after SC decision either they shut down their business or merged with existing big companies to reduce their debt burden.
  4. The fear of another scam put UPA led Congress government into a “Policy Paralysis”. To play it safe, spectrum prices were pushed towards high rates in all subsequent auctions. The high rates forced telecom companies to borrow more money which ultimately led them to burgeoning debt burden.
  5. Many experts also point out that overall debt burden on telecom industry was around Rs. 2,41,000 crore in 2012 – 13, but later on, it became double which amounts to Rs. 4,60,000 crore in 2016 – 17.
  6. The SC decision of cancelling the licenses took the number of operators in the market back to the level before Raja gave away licenses, though the decision to double the telecom players in the market helped the government to increase the subscriber base in the country. The subscriber base became triple from 300 million in 2008 and reached to 951 million before 2012’s SC decision.
  7. The 2G scam also helped the opposition to portray a corrupt image of UPA led Congress government and helped BJP to grab greater hold over parliament after 2011 Loksabha election.

Impact of recent verdict

Political parties may exploit the verdict of the court in the acquittal of alleged accused in 2G Scam, but the overall impact of this verdict is nothing on telecom sector. Most companies who were named in charge sheet have wound up their business from the country. Many experts are saying that the impact of the judgment on the sector is minimal. Most of the impact has been seen in the marketplace after the cancellation of licenses in 2012 by SC. Players have either left the country or residual ones who purchased the license are in the process of existing.


The 2G Scam crippled the overall system and the decision making and brought a corrupt image of politicians and bureaucrats in public. But at the same time, it gave a hard and unrecoverable shock to the new telecom companies like Telenor and Videocon. The auction prices were never curated. Nobody intervened to correct these prices. They are still very high.
The verdict also raised questions on the competence of CBI. By reading the actual words of Justice OP Saini, it seems that CBI did not perform their duty and failed to bring evidence and helped in the acquittal of the accused.
The government needs to take a hard look at the spectrum prices so that the investment by companies can actually go into upgrading the network rather than going into a bidding war.

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