In a ground-breaking judgment, India’s Supreme Court has ordered the cancellation of 122 2G licences that were illegally granted by former telecoms minister A. Raja about four years ago.
The decision directly affects a large number of operators in…
In a ground-breaking judgment, India’s Supreme Court has ordered the cancellation of 122 2G licences that were illegally granted by former telecoms minister A. Raja about four years ago.
The decision directly affects a large number of operators in the Indian market that will lose licences. While Telenor’s Indian JV is one of the worst affected, the three biggest players, Bharti Airtel, Vodafone and Reliance Communications, remain unharmed.
Origins of the scandal date back to early 2008 when underpriced spectrum was allegedly allocated to some telecom operators, costing the government US$39bn in lost revenues.
Consequences of the decision for consumers in India will be limited as most of them have multiple SIM cards. But out of the 15 telcos in the country, eight are affected, mainly small players.
This is particularly the case for Uninor, the Indian JV of Norway-based Telenor, which will see 22 of its licences being revoked. For the next four months, the current licences are expected to remain in place while a new auction takes place.
In an interview with TelecomFinance, Mahesh Uppal, director of consultancy firm Com First (India), explained: “Uninor paid the market price for those licences in 2008. They can bid again for them in a few months time but they’re unlikely to get refunded the premium they paid for the licences.”
In an emailed statement, Telenor said it would now review the order and “consider necessary actions to safeguard our investment”.
The company argued that “it has always been clear that this [the allegations] pertains to actions that happened much before we entered India [in 2009]. When we have not caused any of the faults found by the courts, it is obvious to everyone that our investment must not be jeopardised.”
“We urge the government to ensure that a foreign investor that had nothing to do with these processes is not harmed. We look to the government to arrive at a fair outcome.”
For its part, number four player Idea Cellular, which will also lose several licences, said: “It is unfortunate that a serious incumbent operator like Idea Cellular is being made to suffer due to this cancellation of licences, despite being fully compliant at each stage of the licence allocation process. We will study in detail the above Supreme Court judgement and explore all possibilities to protect our investment.”
Other companies concerned by the judgment include Loop Telecom, Videocon, S-Tel, Tata Teleservices, and Etisalat DB.
For Kunal Bajaj, director at Analysys Mason India, this Supreme Court decision sends the wrong signal to investors. “What the Supreme Court has done here is take a sledge hammer to address the licence issue. Although the government is to blame, operators that have invested a lot of money in the country are now suffering.”
Conversely, today’s judgment is expected to be beneficial to the largest Indian telcos, ratings agency Fitch said in a note on the ruling. “The decision does not affect any licences owned by the three largest players in the market – Bharti Airtel, Vodafone and Reliance Communications – which may benefit from any reduction in competition. The Indian market is fiercely competitive, with over a dozen players compared to three or four in most mobile markets.”
Although this decision is widely viewed as a blow to small operators, Rahul Matthan a partner at Trilegal said: “We’ve only heard half of the story so far. The Supreme Court ordered that those licences should be revoked after finding irregularities in the allocation process. But now, it’s up to the government, more specifically the Trai [Telecom Regulatory Authority of India] to send a clear message to foreign companies about how their investments in India will be safeguarded.”
Some experts also agree to say that the judgment is a signal to investors that corruption will no longer be tolerated.
Since the 2G scandal unraveled in India in mid-2010, several officials and executives have been charged. A. Raja is still being detained.
