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The Grid Lights Up

Dust from the Supreme Court’s 2G verdict descends. It’s a thick haze.

The Grid Lights Up
Atul Chowdhary
The Grid Lights Up
outlookindia.com
-0001-11-30T00:00:00+0553

As the UPA government works within a limited timeframe—and under intense pressure—to put together an acceptable formula for the fresh 2G spectrum auction, is there more bad news on the cards for the telecom sector? It is learned that the government is reviewing the fate of telecom licences given in the 2001-08 period, just before the infamous first-come-first-served policy. The spotlight is on dual technology licences given to four firms (Tata Teleservices, Reliance Communications, HFCL Infotel and Shyam Telelink) in October 2007.

The Supreme Court’s verdict only covers licences issued in January 2008. But the apex court had also said that the government had been following a flawed policy since 2007—since the 35 dual technology licences were given in this period, it is certain that there will be questions on their validity. These licences were one of the three main factors behind the Rs 1.76 lakh-crore loss on account of 2G licensing, as noted by the Comptroller and Auditor General of India (CAG).

In fact, the CAG said that the process for allowing dual technology “lacked transparency and fairness” and that these licences were responsible for Rs 37,154 crore out of the total loss. As the CAG report has been one of the most important inputs for the Supreme Court, there is pressure on the government to put these up for scrutiny. In fact, there is hard lobbying to persuade the apex court to look into licences that were issued between 2001-08.

Dual technology was permitted by the department of telecommunications (DoT) in October 2007 following recommendations from the Telecom Regulatory Authority of India (TRAI). Interestingly, the dual technology licences had been challenged even earlier at the telecom tribunal (TDSAT), which eventually found it legal. An appeal on this decision too is pending before the apex court. With everything up in the air post the 122 licences being cancelled, experts say it’s only a matter of time before dual tech licences (and others) will be reviewed.

Bear in mind that the entire telecom space is a minefield at the moment. There are intense mind games being played by operators to influence the fresh 2G policy and the process by which licences and spectrum would be given out by the government. There is a vertical divide in the industry with the old, existing licence-holders on one side, and the affected companies—who are trying every trick in the book to get a nod in the new set-up—on the other. “I won’t be surprised if it gets mired in litigation,” says business journalist Paranjoy Guha Thakurta, who has been closely tracking the case.

The foreign players, in particular, have been busy. In the last two weeks, they have used the media and diplomats to put pressure on the government. With telecom penetration in India still below 50 per cent and even lower rural penetration, India is too big a market to lose. They have huge investments here as well. According to company officials, both Telenor and MTS will go for a review petition against the verdict. Nothing may come of this, but it is being seen as another way to put the squeeze on the government.

The players are also raising concerns from outsourcing companies who have invested in the networks of operators with cancelled licences. This includes IT bigwigs like Wipro and Tech Mahindra, who stand to lose heavily if any of these companies go out of business. There are casualties already. After Bahrain Telecommunications (Batelco) announced its decisions to quit India, its Indian partner S-Tel has announced that it is also exiting the business. All six licences of S-Tel, with 3.5 million subscribers, were cancelled. Etisalat too has decided to shut down its network till such time as there is clarity on the policy front.

Telecom space is a minefield: Operators use mind games to influence new 2G policy; dual tech licences might be probed.

The affected companies are trying hard to convince the government that the fresh 2G spectrum auction should be restricted to companies with cancelled licences or new players. Says Sigve Brekke, CEO, Uninor and a direct voice of Telenor in India: “The 2008 process was for issuing fresh licences, so a similar approach should be followed now and incumbents should not be allowed in this auction. That’d make it a fair deal.” Obviously, the older players, smelling an opportunity to get more spectrum, are having none of this and are lobbying to ensure they aren’t “discriminated” against. Last week, Vodafone global CEO Vittorio Colao met telecom minister Kapil Sibal and reportedly made a pitch for the company for the upcoming auctions.

Experts feel that the government should have an open and transparent approach. Says Jaideep Ghosh, ED, KPMG: “Even if the auctions are restricted, some of the affected players might get outbid. On the other hand, incumbents, having spent heavily on 3G and facing low subscriber growth, may be more cautious in spending. A neutral auction would be much more broadbased.” Of course, the fresh auctions would allow companies like AT&T to make another attempt to enter the Indian market. There is also speculation that Mukesh Ambani—who has entered the telecom business with a 4G/LTE pan-India licence—may get into the voice business since he already has spectrum.

However the government tilts, the companies want a policy environment that is stable and good for the next decade. Says Vsevolod Rozanov, CEO, MTS: “The government has to decide what its ultimate goal is: to boost GDP growth by bringing money for the exchequer, or telecom penetration.” The government is faced with a situation where it has to balance several factors. It also has to take a decision soon on contentious issues, like dual technology, to clear the cloud over the new policy process. Sources say the government is working on a formula to give preference to affected companies. How it will do so remains to be seen—this will not be an easy task, not by a long shot.

***

The 2G Tug ’o War

How the government, telecom players cope with the aftermath of the cancelled licences

  • UPA: Has to formulate a new 2G policy, while balancing diplomacy and FDI concerns with “fair treatment” to all companies and a need to procure money for exchequer.
  • Foreign players: Have used all kinds of tactics—diplomatic pressure, ads, dramatic exits and threats—to ensure that their investments are secure.
  • TRAI: Has 4 months to work on the licensing and auctioning process, but going by 3G experience, it will take at least six months.
  • Existing Telcos: Trying to convince government/ TRAI that they should also be allowed to participate in the spectrum auction process.
  • “New” companies: Players like AT&T, which lost out last time, are likely to make a fresh attempt to enter India. Mukesh Ambani’s Reliance may bid too.

Broad Spectrum Solutions

  • Open auction for all telcos at 3G spectrum rates. Industry opposed to this route.
  • Limit auction to firms with cancelled licences and new players to ensure level playing field.
  • Start-up auction for affected firms, followed by auction for additional spectrum for all players.
  • Some companies whose bids were found ineligible may be disqualified by the government.
  • Other telecom licences, especially contentious dual technology ones, may come under the scanner soon.

***

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