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.