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Supreme Court Quashes 122 Telecoms Licences

02 February, 2012

The Supreme Court on Thursday revoked all 122 telecoms licences issued under a scandal-tainted 2008 sale, a fresh embarrassment for the government and plunging the mobile network market of Asia’s third-largest economy into uncertainty.

The ruling is a setback for Prime Minister Manmohan Singh’s government, which oversaw the sale of the licenses at below-market prices, costing the exchequer up to $36 billion in lost revenues.

The licences affected by Thursday’s ruling include all of those held by Unitech Wireless, the Indian joint venture of Norway’s Telenor and Unitech.

“We have been unfairly treated as we simply followed the government process we were asked to,” the Telenor joint venture said in a statement. “We are shocked to see that Uninor is being penalised for faults the court has found in the government process.”

The telecoms scandal is the biggest of several that have emerged during Singh’s second term and triggered massive street protests last year. Two ministers, including former telecoms minister Andimuthu Raja, who presided over the 2008 grant process, have resigned. Raja is in jail awaiting trial.

“This country is no longer willing to allow these corrupt corporations and these corrupt public officials to retain the benefits of their illegal and corrupt actions,” said Prashant Bhushan, a lawyer and petitioner in the case.

India is the second-largest cellular market in the world by subscribers, with 894 million at the end of December, although the market is crowded with more than a dozen operators, making call rates among the lowest in the world and squeezing margins.

Investors and operators have long been calling for consolidation in the crowded industry, and Thursday’s ruling stands to benefit the country’s biggest operators, including Bharti Airtel and Vodafone.

“Players like Bharti Airtel and Idea Cellular with popular brands and strong balance sheets will be clear beneficiaries because they can take advantage of this situation and increase market share,” said Jagannadham Thunuguntla, Head of Research, SMC Investments and Advisors, Mumbai.

Stocks in telecoms companies including Reliance Communications and Unitech fell after the verdict, but shares in Bharti Airtel jumped.

“For foreign investors, it is a very bad news. What mistake did they do? They partnered with Indian companies, invested lots of money and followed the process of that time,” said Rishi Sahai, director at consultancy firm Cogence Advisors in New Delhi.

The Supreme Court said the current licenses will remain in place for four months, in which time the government should decide fresh norms for issuing licenses, a lawyer involved in the case said.

India’s image as an investment destination was dented over the past year as the economy slowed, government reforms stalled and the telecoms scandals along with other high profile graft cases heightened concerns about government policies.

“This is a collective failure of the government of India, said S ubramanian Swamy, an opposition politician who brought the petition to revoke the license. ” The court has said that the government must now get the market value of these licenses .”

Loop Telecom Pvt Ltd and Videcon Telecommunications, part of India’s Videocon group are also affected, along with Etisalat DB, the joint venture between Abu Dhabi’s Etisalat ETEL.AD and India’s DB group; and S-Tel.

Thirteen licences held by Idea Cellular and three held by Tata Teleservices are also affected.

What Do Experts Thing

Jaideep Ghosh, Partner at KPMG, New Delhi

“This bring in more uncertainty into the sector, which has already been battling with many issues. In the near term, this will impact the sector’s business and the ecosystem. This also has implications on foreign investments.

“For large incumbents like Bharti Airtel and Vodafone, the verdict is kind of neutral to positive. This may help them acquire new customers as well as extra spectrum, which has always been an issue for the sector.”

Rishi Sahai, Director At Consultancy Firm Cogence Advisors, New Delhi

“For foreign investors, it is a very bad news. What mistake did they do? They partnered with Indian companies, invested lots of money and followed the process of that time.

“The natural consolidation that one would have expected to happen in the sector, which would have weeded out the weak players, is out of the way now. Foreigners would simply walk away from that.

“This creates very bad impression about the government in the overseas markets.”

Jagannadham Thunuguntla, Head Of Research, SMC Investments And Advisors Ltd, Mumbai

“Players like Bharti Airtel and Idea Cellular with popular brands and strong balance sheets will be clear beneficiaries because they can take advantage of this situation and increase market share.

“Foreign players like Sistema and Etisalat, which are government controlled companies… those governments will start feeling apprehensive about doing business in India and hence, drawing foreign direct investment would be little more challenging for the country.”

Deven Choksey, Chief Executive Officer, KR Choksey Securities, Mumbai

“The Supreme Court wants the government and the ministry to come to a conclusion and clear the licence ruckus because this entire controversy has been terrible.

“The market is viewing it positively and will only recover because the earlier licences which have been cancelled will be re-issued after the revised guidelines come out and the monetary considerations will be swapped against the new licences.”


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Supreme Court Quashes 122 Telecoms Licences

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