Supreme Court quashes 122 telecoms licences

Update: SC's decision to revoke 122 telecom licenses is an event that is surely going to have far-reaching implications. Post the ruling, several telecom operators in the country voiced their displeasure over the turn of events. In a statement, Idea Cellular stated that, " ... It is unfortunate that a serious incumbent operator like Idea Cellular is being made to suffer due to this cancellation of licenses, despite being fully compliant at each stage of the license allocation process. As per information available from the media, we understand that the license holders are allowed to continue operations for the next 4 months and an auction will be conducted for these licenses within this period. We will study in detail the above Supreme Court judgment and explore all possibilities to protect our investment."

While Hemant Joshi, Partner, Deloitte Haskins and Sells stated that, "Though we are yet to go through the fine prints of the Supreme Court judgment on cancelation of 122 licenses issued after 2008, our view on the judgment based on what we hear in the media is as below:

• The judgment is a landmark judgment however is likely to add to the uncertainty currently surrounding the telecom sector, but there is a silver lining, the supreme court judgment 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.
• The foreign investors 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.
• It could provide a good exit option for operators who have not rolled out and not willing to roll out in future depending on what the TRAI and Govt decide..
• It perhaps could indirectly lead to consolidation in the market and lead to healthy competition among remaining players.
• Auction process could lead to higher outflow from cash trapped operators since the spectrum price could be higher now and could adversely impact consumers.
• However there is opportunity to the government to come up with NTP 2012 faster and give clear policies and avoid such situations in future."

In the wake of the ruling, Director General, COAI, Rajan S Mathews stated that, "The COAI respects the Supreme Court’s decision as we have always stood by the principle of spectrum pricing via fair market-price based auction. We find it unfortunate that the large investments made by many operators in network, services, staffing and training are now in jeopardy for no apparent fault of theirs. It is imperative that the executive is sensitive to these issues and ensure that the misdeeds of a few are not visited on the many. This is vital to ensure the financial health, sustainability and growth of an industry which is critical to the growth of the nation and the wellbeing of its citizens.

We are hopeful that a balanced approach will be adopted by the government, keeping in view the interests of the consumers, suppliers as well as the investor community. We will examine the ruling in detail to understand its implications and are committed to working closely with the government to ensure that the interests of the customers and the investors in the industry are protected."

News Sources

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."

(For expert views on the verdict, click here)

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.

Quashing the services

"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 Subramanian 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 and India's DB group; and S-Tel.

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