8/6/2019 2G Spectrum Scam Explained

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8/6/2019 2G Spectrum Scam Explained

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Other firms which were ineligible according to the auditor include Loop Telecom,Videocon Telecommunications and S Tel Ltd. The auditor said that Swan Telecom,which has since been partly acquired by the UAE's Etisalat , was given licences eventhough a unit of No. 2 telecoms firm Reliance Communications held over 10% of equity,a violation of rules.

It is still to early to know whether any licences would be cancelled, but the pressurewould be strong not to do so because operators have invested in networks and havesubscribers.

Any big crackdown could send a wrong signal to investors.

But the government could ask operators to compensate for the potential revenue loss ashighlighted by the auditor and may impose fines for not meeting separate rolloutobligations.

The auditor also named nine other operators, including market leaders Bharti Airtel ,Reliance Comm and Vodafone , who were allotted spectrum beyond the contracted limitwithout paying any upfront charges, costing the government a potential $8 billion.

WHAT DOES IT MEAN FOR TELECOM MARKET?

If the government imposes heavy fines on new licensees singled out in the auditor'sreport, it would weaken them further. The newer operators are yet to make profit as theyoffer heavy discounts to grab subscribers, and any financial penalty would be a blow forthem, forcing some to leave the market.

Some operators may also freeze network expansion until clarity emerges on theregulatory front, meaning slower growth for network equipment vendors and otherservice providers.

In case licences are cancelled, it would lead to natural consolidation in the crowded 15-player market.

WILL THIS AFFECT FDI INTO INDIA?

The country's mobile phone market is the world's fastest-growing and its nearly 700million users trail only China, making it a must-invest market for any major global

operator. But regulatory uncertainties have been a concern for some and could makeforeign companies start to look more carefully where to invest.

Any penalty or adverse regulatory action could also weigh on companies such as Telenorand Etisalat, which were not part of their respective domestic ventures when the licenceswere distributed. Also, the controversy would make future investors more careful beforethey decide to invest in the market.

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Vodafone, the single-biggest foreign investor of the nation, is fighting a $2.5 billion taxbill over its acquisition of a mobile firm in the country and has signalled frustration withthe regulations.