ICT PolICy

66 | February 29, 2012 visit www.dqindia.com DATAQUEST | A CyberMedia Publication

SC Verdict on 2G: Confusion GalorePandemonium has broken loose—while the industry is back to square one, the court verdict has made telcos cry, investors suffer and subscribers watch

With the Supreme Court scrapping 122 unified access service li-censes, granted in the year 2008, the judgement has spelled trouble for those 8 telecom companies (most affected were Uninor, Sistema Shyam, and Loop Telecom) who have lost the licenses. The order has

cornered the UPA government and the landmark judgement would also be affecting more than 70 mn subscribers (excluding Tata’s subscribers in 3 circles), who have no option but to wait and watch how the game unfolds.

While the government managers (including telecom minister Kapil Sibal) imme-diately rushed to Shastri Bhawan calling the media and sounding an optimist view on the judgement, the rosy picture is not being shared by many.

Telcos Cry FoulAccording to global research firm, Crisil, the decision will hit an industry, which is already grappling with multiple uncertainties regarding spectrum allocation and pricing, mergers and acquisition norms, and other regulatory procedures.

“Idea Cellular has unnecessarily been caught in this situation of cancelled licences,” says the Aditya Birla Group company, in a press statement released after the Supreme Court order. It also adds that it is unfortunate that a serious incumbent operator like Idea Cellular has been made to suffer due to this cancellation of li-cences, despite being fully compliant at each state of the licence allocation process.

“The Telenor Group wants to be clear that Uninor operations are continuing. Our intention is to fight to protect our lawful investments in the country. We are look-

Inder Kumarinderk@cybermedia.co.in

ICT PolICy

DATAQUEST | A CyberMedia Publication visit www.dqindia.com February 29, 2012 | 67

ers who were frustrated with India’s rules regarding foreign ownership of companies, imports, exports, and taxes remain extremely complex, now it is the investor also who would begin to believe that a formal official letter is not enough to remain com-placent for its investment security.

According to a media report titled India Hangs Up on the Mo-bile Phone Industry - and Investor Confidence (featured in the TIME blog), “The outcome may be the worst case possible for those wor-ried about wobbly investor con-fidence in India. First, it sends a signal to companies dealing with India’s powerful ministries and bureaucrats that following the letter of India’s regulations is not enough. The companies involved in the 2G allocation followed the rules set by the sitting Telecom Minister—how-ever arbitrary that process might have seemed.”

Commenting on whether inves-tor may suffer any major damage, DS Rawat, general secretary of Assocham says, “The judgement will have a cascading impact on investors’ sentiments, as unless the government comes transparent on the allocation of licences, how would the investor will come forward to invest?” He adds, “Without going into the merits and demerits of the case, I would say that the sudden changes in the allocation policy

would definitely the sentiments of the investors.”

The order would not impact investments in the telecom sectors but the others including aviation, coal, energy and insurance where a series of regulations are in place. But with the regulatory mechanism not adding to the security of an investment, it has rather grown the fear into investors’ sentiments that any corruption scam could put their funds into dark.

Some Good PrevailsHowever telecom regulatory expert Mahesh Uppal seems somewhat optimistic, saying, “Of course, we have lost money but we should look at the larger aspect, there is also washing away of corrupt mecha-nism that was involved during the allocation.”

Welcoming the judgement, he says that the fresh auctioning of the licenses may not result in hike in tariffs at a very large extent. “There is a possibility of hike in the rates but the hike would be at an afford-able level,” says Uppal, who is also director, Com First (India).

There is always a market mecha-nism which won’t allow the rates to go beyond an unaffordable level, thus the subscribers won’t be hit badly, he adds.

A winning situation seems appar-ent for incumbents including Bharti airtel and Vodafone. As many would be switching their operators, the 2 cellular giants could gain at the cost of new licencees.

However, with the losing telecom companies left with the only single option of applying for a review peti-tion, requesting the apex court for permission to argue their case be-fore a larger bench of the court; the only good news-amid all this mess-is that the fresh auctions, of course, are going to leg up the government funds and indeed, to aid fiscal budg-eting for the year 2012-13. n

ing to the government to arrive at a fair solution. We expect that the intention remains of bringing new competition to India,” says a state-ment issued by Telenor group.

Murky SituationIt’s not only the telcos that have suffered huge losses; while the government was in an image-build-ing-mode for polls in Uttar Pradesh, the UPA II has also lost much of its credibility which claims itself to be committed towards eradicating corruption. Moreover, the govern-ment has collected `10,500 crore by selling licences, it is still unclear if it will have to refund. Having hung up on the mobile phone industry, Manmohan Singh’s government is now hoping that voters will still take their call.

While cornering the government on the issue, BJP MP Ravi Shankar Prasad said that there was corrup-tion and scam in the allocation of licenses and that will rightly cost the government.

In a reaction to the judgement, Prasad commented, “In 2001 there were only 4 mn subscribers and in 2007-08 there were 350 mn. The entire policy was manipulated and massive irregularity committed which costs heavy loss to the public revenue. No license granted in the NDA regime has been cancelled”.

It’s not only the rights of opera-tors that have been messed with, millions of subscribers, numbers of investors and lenders are also going to suffer. The order will also jeop-ardize `30,000-40,000 crore that the companies including Telenor, Sistema and Etisalat have invested.

Investor Sentiment BruisedThe order, on one hand, sets an ex-ample of a landmark judgement, but on the other has also opened up a new round of scepticism about India as a destination for foreign invest-ment. First, there were foreign play-

The order will also jeopardize `30,000-40,000 crore that the companies including Telenor, Sistema and Etisalat have invested