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Commentary

122 2G Licenses Cancelled By SC Order, Reauctions To Happen In Four Months

The Supreme Court has cancelled 122 licenses issued by then telecom minister A Raja to telecom companies, saying that they were granted in an arbitrary and unconstitutional manner. Raja had, in 2008, granted spectrum licenses to many companies at a price of Rs. 9,000 cr. which was strangely much lower than the 3G auctions which fetched 69,000 cr for a much smaller number of licenses. Some of these companies turned around and sold stake to foreign companies at a much much higher valuation, meaning that the spectrum had been underpriced, and the process was manipulated so that other parties don’t bid.

The losers are Uninor (Unitech + Norway’s Telenor), Loop Tele, Sistema Shyam (Shyam Tele + Sistema), Etisalat DB (Swan tele + Dubai’s Etisalat), S-Tel, Videocon, the Tata Docomo piece and (some) Idea.

Of the newer players, the bulk of the subscribers are with Uninor.

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These guys, as a whole, don’t have a lot of subscribers. Only 66 million (6.6 crore) out of total of 89.3 crore subscribers are with the new fellows – though honestly I don’t have bifurcated figures of Tata Docomo versus Tata’s other services.

These licenses will be auctioned. We don’t know when, how or how much. The court has said four months – within which time the current licensees can continue to operate.

My Notes

  • The govt must be thanking their stars – an auction means money for financing what seems to be a horrendous fiscal deficit. If so, they’ll auction the spectrum before March (or if not, it’s something worthwhile next year).
  • There’s a large ecosystem that the licensees had created – from hiring people to buying equipment to taking debt to working with partners like call centers and data providers. This ecosystem will suffer, or at least stay in limbo.
  • Banks have talked a little about their exposure, which they say is not significant. But I don’t think they currently have an idea of how much they are exposed to. The domino effects will ensure there are bits of bad news on a regular basis in the next few months.
  • The uncertainty may cause certain users to attempt to move, but I honestly doubt that’s an issue. If you were a Uninor prepaid subscriber, you might not explicitly move, you’ll just let your currency expire and buy another sim from someone else.
  • Most of these subscriber numbers are overreported anyway. Do you really believe, honestly, that India has 89 crore mobile connections currently active? Of a population of 120 crore, where a good number are non mobile wielding children, others live in areas too remote for cellphone coverage, and only a tiny percentage has more than one mobile?
  • Is this good for Airtel or Idea? Well, to be honest, when there are auctions, there will be more players coming in and they will have the supreme court sanction that their entry is clean. Airtel has a murky past as well, when they got spectrum in a non-auction method – if someone goes to court, even that spectrum may be deemed to have been underpriced and may go to auction. There is no clarity; and the guys that are “clean” will have a slight advantage. I don’t think the advantage is so much, even if it’s temporary.
  • This is not really about auctions versus first come first serve. That would be too silly. The point is that there were bribes given to subvert the specific process that was used to get spectrum, by the parties involved. So they suffer. It is entirely likely that earlier granted spectrum was also mired in bribery, and if that is found, then those licenses will also be cancelled. The court has made it fairly clear that it is this particular case that is a bother, and that will explain why their action seems so harsh.

Even then, the Airtel stock is up big, and the Unitech stock is down big. But after much analysis the issue will throw up news over a regular period, and will cause some level of uncertainty about investing in India. However, it is a good step that will strengthen the process of handing out lucrative pieces of what is public property.

I would like to also see such a transparent auction process on media advertisements by the government (for tenders, or regular ads of performance, or notices). Also for mines, for iron ore, for coal. This will stifle industry for a while, but we can handle it. The auction-versus-FCFS argument does hold water, especially in the context of a transparency act like an RTI.

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