SC Verdict Over 2G: Confusions Galore

With the Supreme Court scrapping 122 unified access service licenses, 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) immediately 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 Foul

According 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 licences, 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 looking to the government to arrive at a fair solution. We expect that the intention remains of bringing new competition to India," says a statement issued by Telenor group.

Murky Situation

It's not only the telcos that have suffered huge losses; while the government was in an image-building-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 government 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 corruption 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 operators that have been messed with, millions of subscribers, numbers of investors and lenders are also going to suffer. The order will also jeopardize `30,000-40,000 crore that the companies including Telenor, Sistema and Etisalat have invested.

Investor Sentiment Bruised

The order, on one hand, sets an example of a landmark judgement, but on the other has also opened up a new round of scepticism about India as a destination for foreign investment. First, there were foreign players 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 complacent for its investment security.

According to a media report titled India Hangs Up on the Mobile Phone Industry - and Investor Confidence (featured in the TIME blog), "The outcome may be the worst case possible for those worried about wobbly investor confidence 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-however arbitrary that process might have seemed."

Commenting on whether investor 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 Prevails

However 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 mechanism 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 affordable level," says Uppal, who is also director, Com First (India).

There is always a market mechanism 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 apparent 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 petition, requesting the apex court for permission to argue their case before 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 budgeting for the year 2012-13.