Supreme Court cancels 122 telecom licences, tells govt to take policy action

The companies whose licences have been scrapped, apart from Uninor (a joint venture between Norway’s Telenor and Unitech Group), and Sistema Shyam (it offers services under the MTS brand name through a JV between Russia’s Sistema and Shyam Telecom) include S Tel, Videocon, Idea Cellular, Tata Teleservices, Loop Telecom, Etisalat DB (a JV between the UAE’s Etisalat and Swan Telecom).

Detailing the future process, the Supreme Court said, “Within two months, Trai shall make fresh recommendations for grant of licence and allocation of spectrum in 2G band in 22 service areas by auction, as was done for allocation of spectrum in 3G band. The Central government shall consider the recommendations of Trai and take an appropriate decision within the next one month and fresh licences be granted by auction.”

The court also ordered Tata Teleservices, Unitech Wireless Group and Etisalat DB Telecom to pay Rs 5 crore as fine as they “benefited by a wholly arbitrary and unconstitutional action taken by the DoT for the grant of UAS (unified access service) licences and allocation of spectrum in 2G band and who off-loaded their stakes for many thousand crore in the name of fresh infusion of equity or transfer of equity”.

Loop Telecom Ltd, S Tel Ltd, Allianz Infratech Ltd and Sistema Shyam Teleservices Ltd shall pay Rs 50 lakh each. The orders were passed by a bench of Justice G S Singhvi and Justice A K Ganguly in public interest petitions moved by the Centre for PIL and Janata Party leader Subramanian Swamy. A special court was set up during the hearing of these petitions last year.

Raja, during whose term these licenses were issued, is already under judicial custody for a year now for his alleged role in 2G spectrum allocation irregularities. Responding to the order, communications and IT minister Kapil Sibal said the government accepted the verdict, and it would await Trai recommendations and proceed in accordance with the court directions. He said the order had provided clarity and the future road map became known. "Henceforth, spectrum will be auctioned… the investors will also be clear now on what they will get. Companies can seek reprieve from the court if they wish," he said.

Trai Chairman J S Sarma said, “The Supreme Court judgment will be implemented. Customers will not be impacted from the cancellation of licences, as around 95 per cent market share is of those who got licences before January 2008. Subscribers have the option to port out through MNP. We will instruct operators to inform their subscribers and come out with an advertisement."

The stock market reacted, with shares of incumbent Bharti Airtel going up 6.88 per cent to close at Rs 385.95. The company did not face any cancellations. However, the shares of Videocon Industries were down 0.92 per cent at Rs 171.95 while Unitech Ltd fell by 7.04 per cent to Rs 25.10. But, despite many of its licences getting cancelled, Idea Cellular went up 2.68 per cent and closed at Rs 95.85. That, market experts said, was because only four per cent of its revenues came from the seven cancelled service areas that were operational.

While publicly most of the operators whose licences have been cancelled have raised serious concerns, privately many of them say the judgment will remove the cloud over their operations once they bid and win spectrum through the auction process.

The cancellation of licences will release 470 MHz of 2G spectrum across the country - more than half of what has already been given to the operators.

Operators say demand for 2G spectrum, unlike the mad rush for 3G spectrum, will be muted. That is because the telecom business is going through a serious financial crunch and telcos don’t have that kind of money to splurge. Also, not more than two-three of the eight new players are still serious about their business in India. The rest, like Loop Telecom for instance, have already expressed intent to surrender licence. The auction price will crucially be determined by the way Trai formulates the rules - will the entire spectrum being released be auctioned in one go, or only a part of it, what the base price will be and of course the number of players who would want to bid.

For incumbent players, the decision is a bonanza. For one, it substantially reduces the number of competitors and makes raising tariffs easier. Two, if the auction of 2G spectrum is muted, the price would be what they would have had to fork out as market value of their spectrum when their licences would come up for renewal in 2012.