Karela Fry

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122 telecom licences cancelled

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A landmark judgment of the Supreme Court was reported by IBN Live:

Dealing a major blow to the Congress-led United Progressive Alliance (UPA) Government the Supreme Court on Thursday cancelled all 122 telecom licences allotted under the 2G spectrum on or after January 10, 2008. All additional spectrum given to incumbents on or after January 10, 2008 have also been cancelled.

While cancelling the licences the Supreme Court ruled that 85 out of the 122 licences were outside the eligibility criteria for allocation. The apex court said that the 122 licences for 2G spectrum were granted in an arbitrary and unconstitutional manner.

The licences, which were allotted by former telecom minister A Raja, will be cancelled in four months from now and the Telecom Regulatory Authority of India (TRAI) must go in for a fresh issue of licences during this period, the apex court observed.

A penalty of Rs 5 crore has been imposed on Unitech Wireless Ltd (Uninor), Swan Telecom and Tata Telecom. A penalty of Rs 50 lakh has also been imposed on Loop, S-Tel, Allianz and Sistema Shyam.

The licences cancelled include 21 of Videocon, 22 of Unitech Wireless Ltd (Uninor), nine of Idea, 21 of Loop, six of S-Tel, 21 of Sistema, three of Tata, 13 of Swan and two of Allianz.

An editorial in HT immediately drew an important policy conclusion:

By cancelling licences issued by the UPA government to telecommunications companies in 2008, the Supreme Court has ruled against discretion in the allotment of natural resources like radio frequencies. This is in contrast to the view of this government and that of its predecessor, the NDA, that big upfront costs like spectrum fees, which must be passed on to customers, don’t serve the larger goal of universal telecom access in India.

Ergo, radio frequencies need to be farmed out cheap. The court, however, finds the method used by the then telecom minister A Raja to distribute permits tied to bundles of spectrum unacceptable. This is a noteworthy development in Indian policy-making. But while this should lead to a new transparency in policy-making, the question is whether such a decision will inhibit making policy at all.

The country’s learning curve in telecom regulation has been steep: it has taken us 15 years to realise that the most efficient way to allot radio frequency, as with any other finite natural resource, is through open bidding. Fortunately, the government has, on its own, come to the same conclusion as the courts.

Other than this there could be many implications on business and politics, and the debate is not going to subside soon. BBC takes a negative view of the business climate:

The Indian Supreme Court order to cancel 122 mobile licences issued by former Telecoms Minister A Raja four years ago will severely affect millions of subscribers, domestic and foreign investors, public and private sector banks and key leaders in the government, argues business analyst Alam Srinivas.

Among the licences given by Mr Raja which were dubbed as unlawful by the apex court, six companies – including Uninor (Unitech-Telenor), Videocon, SingTel, Loop, and Etisalat – were newcomers to the Indian market.

They have more than 50 million Indian subscribers – or 5.5% of the total base market of almost 900 million people.

The judgement said that they will need to transfer to other operators within the next four months.

In addition, there will be tens of millions of customers of firms like Idea Cellular – which got licences for nine areas including Calcutta, West Bengal, Punjab and Karnataka, and Tata Teleservices, which got three – who will have to take a similar decision.

ET took a diametrically opposite view:

“It is a very positive verdict and has settled the spectrum row for once and all. Some operators would definitely be affected but they will have to accept the verdict,” Mahesh Uppal, telecom analyst and director of consultancy firm Com First India told IANS.

Speaking on the massive investments made by the affected players on infrastructure, Uppal said: “I am sure serious players would bid again for the spectrum once the government conducts fresh auction.”

According to consultancy firm Deloitte Haskins and Sells, though the judgement is likely to build a slight uncertain environment for investors it would put enough pressure on the government to end the spectrum issue in four months.

“The foreign investors are likely to adopt cautious approach while taking investment decision. The issues which arise from verdict unless resolved quickly will create lot of uncertainty which could again have negative impact on foreign investment in India,” said Hemant Joshi, Partner, Deloitte Haskins and Sells.

“But there is a silver lining, it would put pressure on the government to close this matter within 4 months and once this is resolved, operators can look forward to stable policy,” he added.

The political consequences are what most news sources are debating today. TOI laid out the facts of the judgment:

While the Supreme Court today came down heavily on former telecom minister A Raja, it has not found any fault on the part of Prime Minister Manmohan Singh, the then finance minister P Chidambaram or the ministry he headed.

The judgement has strongly indicted Raja over the manner in which he manipulated the issue of licenses and ordered cancellation of the 122 2G licenses in 22 circles.

The two-member bench of Justices G S Singhvi and Ashok Ganguly found that telecom regulator Trai’s recommendations of 2007 on the policy of first-come first-serve basis was placed before the Telecom Commission in October but the four non- permanent members, including the Finance Secretary, were not even informed about the meeting.

A week later, Raja accepted the recommendations of the Telecom Commission and approved the Trai’s recommendation but did not get in touch with the ministry of finance to discuss and finalise the spectrum pricing formula.

“However, as the Minister of C &IT (Raja) was very much concious of the fact that the secretary, finance, had objected to the allocation of 2G spectrum at the rates fixed in 2001, he did not consult the finance minister (Chidambaram) or the officers of the finance ministry,” the judgement said.

Raja sent a letter in November, 2007 to the Prime Minister saying the department of telecom has decided to continue with the existing policy. He did not bother to consider the suggestion made by the Prime Minister that in view of the inadequate availability of spectrum fairness and transparency should be maintained in its allocation.

Expected, but largely justified, responses came from the opposition. NDTV reported:

The Supreme Court’s decision to cancel 122 telecom licenses issued in 2008 by A Raja has shattered “the entire credibility of the decision-making process of this government,” said the BJP today.

The opposition party said the Prime Minister must take responsibility for letting Mr Raja follow a process described as “unconstitutional and arbitrary” by the Supreme Court. Mr Jaitley and other BJP leaders said Sonia Gandhi and the Prime Minister need to explain their government’s action. “This government is shameless,” said Mr Jaitley. “It can’t be that the people who control the UPA and the Congress are not responsible. The UPA chairperson has a lot of answering to do. So does the Prime Minister’s Office and the Congress party,” he said.

3 Feb, 2012

This story is too big to die a quick death. The aftermath started today with full page ads from Vodafone welcoming new customers. BS reports on the reserve bank’s concerns about the health of banks:

The country’s central bank on Friday swung into action to take stock of banks’ exposure to the telecom firms affected by the Supreme Court’s order that cancelled 122 2G licences granted in 2008 during the regime of A Raja as telecom minister.

The Reserve Bank of India (RBI) has asked the banks to furnish details of their exposure in the telecom companies that are hit by yesterday’s cancellation of 2G licences. As on August, banks’ commitment to those companies were Rs 20,000 crore, of which they have already extended around Rs 15,000 crore.

Out of the Rs 15,000 crore, about Rs 6,000 crore was towards acquiring the licences. Now, the regulator has asked banks to furnish details of their exposure as on December 31, 2011.

Banks are expected to furnish the data in a week. Banks overall exposure to the telecommunication sector as on December 30 was Rs 90,000 crore. Banks exposure to the sector has fallen 3.8 per cent on a year-on-year basis, after registering 80 per cent growth in the previous year.

The Hindu Business Line reported the TRAI’s response to the judgment:

Facing the 120-day deadline set by the Supreme Court for auction of 2G spectrum that would be vacated by scrapping of 122 licences issued in 2008, the Telecom Regulatory Authority of India (TRAI) on Friday began the process by issuing a pre-consultation paper on the issue seeking views of all stakeholders.

“On the issue of ‘allocation of spectrum in 2G band in 22 service areas by auction’, stakeholders have been requested to send their comments/suggestions on the issues involved,” said Principal Advisor (Mobile Services) Sudhir Gupta. In view of the urgency of the situation, the TRAI has set February 15 as deadline for receiving written comments. “Keeping in view the time-bound nature of exercise, no extension of time will be given,” Mr. Gupta said.

Try your luck locating the documents inside the TRAI website. I get a 404 error when I try to look at them.

Telenor was in the news. Reuters reported:

Norway’s Telenor will write down 4.2 billion crowns ($721 million) related to its Indian operations after a court there ordered its licences revoked, in a move analysts said was long overdue and had been expected by investors.

“It should have been marked down a long time ago,” said Ole Petter Kjerkreit, a telecoms analyst at ABG Sundal Collier. “The investor market wrote these values down on the date of the announcement in 2008, when the share price dropped 26 percent.”

He added: “Telenor has continued to invest with highly questionable logic, but now they have chosen to adapt to reality.”

India is the second-largest mobile phone market in the world with around 900 million subscribers but call rates are among the lowest due to fierce competition, and analysts have said that India is a drag on Telenor’s profits.

The Hindu Business Line has more on this:

Foreign telecom players including Telenor, Sistema JSFC and Etisalat have sought the Government’s intervention in protecting their investments in the 2G mobile companies affected by the Supreme Court ruling.

These players said they made the investments in the 2G companies based on licences issued by the Department of Telecom and hence expect a fair policy decision from the Government.

Some of the players are willing to buy back the spectrum through an auction but want the Government to sell all available airwaves.

“They should not try to create an artificial supply-demand gap just to earn more revenues,” said one of the affected operator. Other players that do not want to participate in the auction simply want the Government to refund the entry fee they paid for the licences.

Russian major Sistema said that it expects a clear, transparent, and equitable policy decision by the Government. “Sistema is being penalised for acting in good faith and in reliance on the appropriateness of the procedures established by India’s telecommunications authorities. To safeguard its interests, Sistema and SSTL will contest this order by pursuing all available legal remedies,” the Russian firm said.

Sistema has invested millions of dollars in rolling out services and is being seen as one of the players likely to take part in the auction.

Sources in one of the affected companies said that it may even sue the Department of Telecom for issuing licences without following the due process. “Instead of punishing the DoT which did not follow the procedures, the operators are being held liable,” an operator said.

And well they should. A question which has not been asked often enough is the following: if the 2G spectrum scam is worth Rs. 1,760,000,000,000, then what about getting it back from the scamsters?

Feb 7, 2012

The continuing story finds a mention in ET:

Norway today intensified its diplomatic efforts to ensure that the country’s telecom company Telenor’s over Rs 14,000 crore investment in India is not jeopardised in the wake of Supreme Court cancelling 122 2G licences last week.

Norwegian IT Minister Rigmor Aasrud met Telecom Minister Kapil Sibal and discussed various issues relating to the 2G controversy and the possible way forward in this regard.

Telenor is a majority shareholder in Uninor, a joint venture with Indian realty player Unitech. The Norway government in turn holds the majority stake in Telenor.

Feb 23, 2012

The waters will roil for a while yet. WSJ reports:

Emirates Telecommunications Corp., known as Etisalat, said Wednesday it will shut down Indian unit Etisalat DB’s operations, after the country’s Supreme Court ordered to cancel all mobile-telecommunications service licenses issued in 2008 on complaints of corruption in their allotment.

“As unanimously resolved by the board this evening, Etisalat DB will be taking steps to reduce operating costs, including the suspension of its network and services,” Etisalat said in an emailed statement. “The decision has been taken in order to protect the interests of all stakeholders and to avoid incurring further costs at this time of rapid change and continued uncertainty in the Indian telecommunications sector.”

Etisalat said Wednesday that it will make a decision on its participation in the Indian market when there is clarity on the auction process, and greater legal and regulatory certainty.

Etisalat said Feb. 9 that it would recognize an impairment charge in its 2011 financial statements amounting to 3.04 billion U.A.E. dirhams ($827 million) against the full carrying value of goodwill and the net assets, including licenses of its Indian operations. The telco’s fourth-quarter net profit fell 65% to AED705 million on the charge.

Etisalat holds 44.73% of Etisalat DB Telecom Pvt. Ltd., the Indian joint venture in which Majestic Infracon owns 45.73%.

Etisalat bought the stake in the company, then called Swan Telecom Pvt. Ltd., before allegations over the scam broke out but after Swan was awarded the licenses in early 2008.

Bahrain Telecommunications Co., known as Batelco, also had its Indian license canceled, but managed to sell its 42.7% stake to its Indian partner Sky City Foundation for 65.8 million Bahraini dinars ($173.6 million). Batelco earlier on Wednesday said that will continue to look for opportunities in the Indian telecoms market.

Following this ET reported:

UAE telecoms operator Etisalat has sued its Indian joint venture partners for fraud, the former monopoly said on Thursday, following a top court’s recent order to cancel its affiliates licenses amid a corruption probe.

Etisalat has launched legal proceedings against Vinod Goenka and Shahid Balwa, top executives at its India partner DB Group, and Majestic Infracon Private Limited, a DB Group company, for fraud and misrepresentation.

This thread of the story is not going to peter out soon. Moneycontrol reports:

Telecom tribunal TDSAT today issued a notice to Etisalat DB on Reliance Infratel’s plea seeking to recover Rs 1,200 crore from the operator.

A TDSAT bench headed by its Chairman Justice S B Sinha asked the company to file a short reply within two weeks and posted the matter on March 5 for next hearing.

The Anil Ambani group company is seeking to recover Rs 1,200 crore from Etisalat DB which had taken its telecom infrastructure on lease. The counsel appearing for the Anil Ambani group company told the tribunal that Reliance Infratel was under pressure after the recent developments concerning Etisalat DB, which has decided to shut down its Indian operations.

Reliance Infratel further said that the company wanted to secure its due amount, which is around Rs 1,200 crore. Etisalat DB is a joint venture between Etisalat of United Arab Emirates and Dynamix Balwas Group of India. The JV had telecom services license to operate in 15 circles.

Reliance Infratel is a subsidiary of Reliance Com.


2 Responses

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  1. […] the 2G telecom scam broke it was clear that things were going to change. One of the changes was the cancellation of 122 telecom licences ordered by the supreme court. This was a depth charge: the effects showed up over the weeks as the […]

    Deeper waters « Karela Fry

    February 24, 2012 at 4:04 am

  2. […] scam under the carpet of coalition dharma. Trying to right that wrong led the supreme court to cancel a large number of licences at one go. This led to foreign investors trying to withdraw from the Indian market. The bellwether […]

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