The entire Indian telecom fraternity was in deep shock over the cancellation of 122 licenses awarded to various telcos during & after year 2008. It’s victorious moment for Mr. S. Swamy, who is indeed the architect of yesterday’s landmark judgment. But how could something tumultuous really happen to such high scale, when it’s just three years back all was well in Indian Telecom Industry?

It all started during year 1999, when first National Telecom Policy was formed, which mentioned that spectrum, aka band of frequencies, will be allocated based on first come first serve basis. This policy clearly linked the issuing of telecom license to allocation of some basic amount of spectrum at fixed price decided according to some formula.

Over the last decade, Indian telecom industry grew significantly, but what haven’t changed were the basic governing rules for the industry. Once a policy formed, way back in year 1999, governments stick to the rules till it came to notice that such inadequate rules have been exploited number of times by following regimes of policymakers in awarding licenses & subsequently the spectrum too.

Now, when the allocation of spectrum to 122 licensees during & after year 2008 stand cancelled, it shouldn’t come as surprise. In fact, the judgment has come off late, where all licensees received the spectrum at prices set in year 1999. This is often mentioned as ‘buying the spectrum at throwaway prices’ without any auction. No market based corrections are applied while estimating the cost of telecom natural resource in past one decade.

In fact, Supreme Court of India should have intervened long back, when Unitech & Swan, awarded licenses for mobile telephony, offloaded their partial stakes in year 2005-06 for thousands of crores of rupees, on the virtue of just holding the spectrum. The amount these companies received by diluting stakes was in multiples of the price they paid to buy spectrum.  Why SC of India didn’t stop awarding of spectrum to Unitech and Swan & cancelled the allocation at that time only? Why it took almost six years to respond to the flaws in policy till someone had totally messed up things beyond resolution?

Now when licenses awarded during year 2008 and thereafter are cancelled, the companies, involved in purchasing those licenses must decide on next plan of action.

Uninor, the joint venture between Unitech & Norway’s Telenor, threatened to quit the business in India altogether.  But significantly, with more than 36 million GSM subscribers in pocket as on Dec 2011, offering to quit after investing more than Rs 6000 Cr till date would be tough gamble. Uninor might offer to sell off its stake to partner Unitech Wireless at market price, but as Unitech is already embroiled into spectrum allegation, this possibility is distant at present.

SC has already directed TRAI, the telecom regulatory authority, to re-auction the spectrum freed in next four months time period. It’s estimated that amount of spectrum freed would be more than 500 MHz .

But what about the investments made by telecom value chain?  A Time of India reports cites that as many as 10000 employees of various telcos might get affected due to such spectrum cancellation, but exact figures are likely to be much higher than this estimate.

Telcos such as Idea Cellular, Tata Tele, Uninor & MTS (Sistema Shyam) might offer to re-participate in the auction again to buy spectrum at current market prices, but the amount involved to procure the same would be significantly higher this time. It would indirectly going to affect the current tower rollout plans of most of them and  in case of Idea and Tata, who participated in 3G spectrum auctions recently, now going to pay heavy price of reauctioned 2G spectrum too.

Other telcos, including Videocon, Etisalat DB, Loop & S-Tel might offer to wind up the operations altogether. Offloading telecom assets would be certainly better option for them keeping in mind that these all are late entrants (except Loop) in telecom market with negligible market share. This would pave way for much awaited M&A in the industry, which is long suffering from hyper competition & lack of spectrum. But still if they stick to keep up their stakes in telecom sector, it would come at significantly high price & road ahead would be tougher for them.

Interestingly, Aircel & RCOM stand clear off the allegation this time at least, while Tata Teleservices had to tackle spectrum issues separately henceforth.

The banking sector, which has issued loans to telecom companies, is in real dizzy, where more than Rs 10000 Cr of loans is already sanctioned against assets of telcos. Would telecom sector command the trust once earned while ensuring secure repayments of loans? A real ‘Tough Call’.

In the end, it would be really different story to find out who would suffer maximum losses or end up paying more, the judgment has severely tarnished the image of Indian Telecom Industry, in particular of the policy makers, beyond estimation. Despite being touted as second largest market by sheer market size, microeconomics analysis portrays a rather sad picture of the industry. How long someone would be investing in Indian telecom sector based on just macroeconomic factors such as market size or revenue potential (dipped significantly) or growth rate (slowed down in recent years)?

As said above, the judgment came off late despite there were numerous evidences of prior spectrum mismanagement. And why to cancel spectrum issued only after year 2008, when spectrum allocated during entire last decade comes under scanner.

Real question isn’t the estimation of exact prices of spectrum, or how much exchequer has lost due to spectrum mismanagement & misallocation, but to restore the credibility of entire process of telecom regulation. Spectrum management is just part of entire regulation process. Will telecom regulators & policy makers wake up to the call, at least now?


Tags : 2G ScamIdea CellularLoopMTSSpectrum mismanagementSpectrum ScamSTelTelecom India Spectrum ScamTelecom SpectrumUninor in 2G ScamVideocon