Licence cancellation to hit half a dozen telecom circles

The biggest impact of Thursday's Supreme Court verdict quashing 122 telecom licences issued to a clutch of 2G mobile operators is likely to be felt in nearly half a dozen telecom circles across the country.

While back-of-the-envelope calculations indicate that the cancellation of licences could affect in excess of 75 million mobile users across the country —many of whom are subscribers of new telecom players who have landed in trouble — the fallout would be most acute in circles such as Maharashtra, including Mumbai, Uttar Pradesh (East), Uttar Pradesh (W) and Gujarat, and to a lesser extent in Tamil Nadu, Karnataka and Andhra Pradesh where these players had rolled out services.

The apex court on Thursday, while cancelling the licences allotted on or after January 10, 2008 to 11 companies during the tenure of the former telecom minister, A. Raja, had stated that the order would be operational only after four months.

It mandated the Telecom Regulatory Authority of India (TRAI) TRAI to make fresh recommendations on allotment of the licenses within two months, based on which the Centre would take an appropriate decision within the next one month, and fresh licences be granted by auction.

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.

According to industry sources, should the telecom operators who lost the licences fail at (or opt out of) the fresh auctions for 2G spectrum, the fallout could play out in the form of a consolidation in the market in favour of established players and a possible upward revision of call tariffs. It is pointed out that mobile tariffs had bottomed out — putting immense pressure on the Average Revenue Per User margins — because of the killer rates offered by new entrants and the exit of this segment would see a return of more realistic call costing in the industry.

Healthy competition

When contacted, R.K. Upadhyay, Chairman and Managing Director of BSNL, doubted whether Mobile Number Portability (MNP) would be a relevant mechanism for mobile users in this particular context. “My preliminary impression is that MNP is not relevant in a setting where a telecom player is scrapped of its licence. Basically, operationalising the MNP also involves using the equipment of the telecom operator from whose network a user is seeking to port out. If the company ceases to exist then users can only take a new connection from an operator of their choice,” he said.

On whether a churn of such large numbers of mobile users would constrain the capacity of networks, he said capacity constraint was not an issue for a deep-entrenched operator like the BSNL should there be any largescale in-bound migration to its network.

According to him, the fallout could have an impact on tariff structuring in the industry. “We are likely to see a return to healthy competition and to a pricing regime that is realistic and sustainable for the industry,” the BSNL CMD said. Meanwhile, TRAI has, in response to the Supreme Court's bidding, floated a pre-consultation note on Friday — titled “Allocation of Spectrum in 2G band in 22 Service Areas by auction” — inviting written comments from stakeholders by February 15.

Indian telecom licences acquired with bribes are cancelled

One hundred and twenty two (122) mobile 3G licences that were sold by the Indian government in 2008 have been cancelled by the country’s Supreme Court after they were found to have been acquired using bribes. The cancellations have caused shares in affected companies to tumble but in the long run will benefit the large incumbents as they can now gain access to new parts of the spectrum in a less competitive environment.
The sale of the licences in 2008 aroused considerable suspicion of wide scale bribery as many licences were sold at what appeared to be very low prices, denying the government of an estimated USD 31 billion. The scandal brought the issue of public bribery firmly on to the national agenda and has rocked the government of Manmohan Singh since. The former telecom minister, Andimuthu Raja, is in jail awaiting trial; other public officials and an MP are currently on bail.
The Court cancelled the licences held by companies such as Unitech Wireless, Loop Telecom, Etisalat DB Telecom, Videocon Telecommunications, S Tel, Idea Cellular and Sistema Shyam Teleservices. The companies have four months to conclude their operations.
Vodafone (LSE:VOD), the world’s leading mobile operator, who retains its licence took out full page advertisements in newspapers saying “Everybody’s welcome to the network you can depend on”. Vodafone is keen to force some consolidation to improve the profitability of its Indian division.
Unitech (BSE:507878) shares fell from Rp 28 to Rp 25 on the Bombay Stock Exchange. The company bought some licences in partnership with Norway’s Telenor and has had to pay Rp 50 million (USD 950,000) in fines.
Reliance Communications (BSE:532712) was not affected by the licence communications and is expected to benefit in the longer term. Its shares are currently trading about 6% lower than their peak of Rp 101.9 before the announcement.
Indian government has a long history of public official corruption and the battle against is a long one. Currently the government is also looking into whether the country’s second largest private power company, Lanco Infratech, and Moser Baer India broke any laws when they won extra capacity in India’s first solar power auction.

Ministry to decide on spectrum licence cancellation soon,

Spectrum licensing: A telecom tower (file photo). The Telecom Ministry will decide in a month's time cancellation of licences given by the former Minister, Mr A. Raja, to allegedly ineligible firms.


New Delhi, March 25:

The Telecom Ministry has said that it will decide in a month's time on the cancellation of licences given by the former Telecom Minister, Mr A. Raja, in 2008 to allegedly ineligible firms.

"We have received replies from all 85 licence holders who were issued showcause notices. We are legally examining them and should be able to take a decision on it in a month's time,'' the Telecom Secretary, Mr R. Chandrasekhar, told reporters today.

He categorically denied that any licence has been cancelled so far.

The Telecom Ministry has issued notices to firms on two issues - ineligibility to get licences and missing the roll-out obligations within the stipulated timeframe - and the process to send notices would be completed within a week, he said.

The DoT has to give 60 days to the operators to file their response to the showcause notice for the cancellation of licences. "In certain cases, 60 days are over while in some, there is till some time,'' officials added.

Mr Raja is facing charges of issuing 122 licences in 2008 without auctioning the scarce resource spectrum, which caused a presumptive loss of over Rs 1.76 lakh crore. The matter is being examined by various investigating agencies and also a parliamentary panel.

Notices have been issued to Swan Telecom (now Etisalat DB), Datacom (now Videocon Telecom), S Tel, Uninor and others, either due to ineligibility or missing the roll-out obligations.

In its reply to the Public Accounts Committee, headed by the BJP leader, Mr Murli Manohar Joshi, the DoT again rejected the allegation of any notional loss due to the issuance of 122 new licences in 2008 and said the premium placed on the scarce resource from the perspective of a producer need not necessarily translate into a loss when seen from the view point of the consumer and public welfare.

"The concept of notional loss when spectrum is given at a price discovered few years earlier has to be balanced with the gains accruing to the consumers and the general improvement in public welfare in the form of faster economic growth,'' the DoT said.

The PAC had sent 40 questions to the DoT relating to the 2G spectrum scam.

Suggesting that the notional loss reported by the audit report should be seen in light of the benefit that it has given to consumers and general public welfare in the form of quick economic growth, the DoT said the objectives of the Telecom Policy since 1999 was to increase teledensity and affordability for consumers, while maintaining a level-playing field between incumbents and new players as well as revenue accrual for the Government.