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Waiting for the axe to fall: likely scenarios

• Supreme Court may order outright cancellation of licences on the basis of the CBI probe
• Norms provide for cancellation if there are procedural flaws or failure on rollout obligation
• With number portability active, subscribers will not suffer as they can go to other telcos
• Most vulnerable are Unitech, Swan, which have been questioned on many counts
• Companies are  scared, as there is no appeal if SC orders licence cancellation
• Some may escape with fines, as SC may look at investments in infrastructure
• Foreign firms putting pressure, say they followed the rules and should not suffer
• Only delaying factor could be the JPC, which is  to submit report in three months

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Will their licences be cancelled? Or (and this would be a relief, really), is a heavy dose of penalties coming their way? Says an official from one of the new telecom firms: “The mood in the SC is so belligerent, the feeling is that there’s going to be a bloodbath...”

As of now, nine companies (who hold 119 licences) have been singled out. They have been charged with being ineligible to get licences or of not having met rollout obligations. For these lapses, they could lose licences. The ineligibility issue is more serious—many firms are still struggling to prove their qualification. The most vulnerable are Unitech (now Uninor) and Swan Telecom (now Etisalat DB Telecom), whose shareholding pattern and links to unscrupulous deals are being questioned by the CBI. Others in the dock include Loop Telecom, Datacom Solutions (now Videocon Mobile) and S-Tel.

Caught In A Wireless Web

New telecom players are in a tizzy as they await an SC decision on licences, contracts

Having spent hundreds of crores in network and infrastructure, the companies stand to be hit hard. According to rough market estimates, the new companies have invested between Rs 25,000-30,000 crore in infrastructure and network development. Of this, Uninor is reported to have invested around Rs 9,000-10,000 crore alone and set up 30,000 towers, while Etisalat (which bought into Swan) has spent Rs 3,400 crore, Videocon Rs 7,000 crore, and Loop Telecom around Rs 4,000 crore.

As expected, the new telecom companies have resorted to intense lobbying. But with the Supreme Court calling the shots, there is little or no scope of appeal. That’s why companies with foreign partners are bringing “good faith” and the threat of “damage to India’s image” into play. Their argument is that investors who came into India through legal channels should not suffer—and that any move to cancel the licences could affect inflow of FDI.

The desperation is showing. The companies (barring Uninor) have pleaded that since corruption in the ministry started much before the 2008 round of licensing, the court should look at all licences issued before that and take action where necessary. Says an advisor to one of the new service providers, “The court may not look at cancellation of licences because equity and public goodwill prevail in the minds of the judges.” They pin their hopes on the investments in infrastructure and subscribers the companies have acquired.

But going by the Supreme Court’s mood, this may not work. With mobile number portability becoming operational, the issue of subscribers “suffering” also does not arise. The decision, then, lies squarely with the Supreme Court. If it is established that the erring companies did not fulfil licence qualifications at the time of application, and if the apex court deems it fit to cancel licences, it will not hesitate in doing so despite the pressures.

The financial situation of the new licencees is not great either. Says Jaideep Ghosh of consultancy firm KPMG: “The new players would bleed as their financials are pretty bleak and would remain so.” On top of this, they have had to pay fines for delays in rollout. An official in one of the affected  companies says new players are losing Rs 70-150 crore a month.

Clearly, the new companies are in a quandary. Rolling out services in new circles entails cost and, given the uncertainties, it does not look like a good idea. Some companies (like Uninor) have reportedly resorted to large-scale retrenchment. On March 9, Loop Telecom told the SC it was even willing to auction its licence for 21 circles, along with spectrum. Apart from the new telcos, there are others who could face collateral damage. Things don’t look good for Anil Ambani—a strong case is believed to have been built by the CBI on Reliance ADAG’s holding in Swan Telecom during the application stage. Also, there are reports of Reliance adag’s links with the company of Shahid Balwa, the jailed promoter of DB Group (which now owns Swan).

Similarly, Essar’s holding in Loop Telecom is under scrutiny. The Ruias—who have a stake in Vodafone Essar—have less than 10 per cent in Loop. The rest is with the Dubai-based Kiran and I.P. Khaitan—sister and brother-in-law  respectively of the Ruia brothers. Essar has now filed an affidavit in the SC, saying that family relationship does not make the Khaitans an associate of the Ruias. One thing is clear: all bets are off for the players in the 2G scam.