Licence issue and transparency: reprise

Citation

Curwen, P. (2012), "Licence issue and transparency: reprise", info, Vol. 14 No. 4. https://doi.org/10.1108/info.2012.27214daa.002

Licence issue and transparency: reprise

Article Type: Rearview From: info, Volume 14, Issue 4

A regular column on the information industries

It is with some reluctance that Rearview returns to the same topic for the fourth time[1], but the story of mobile licensing in India is so fascinating that the urge to deconstruct it is irresistible. The previous Rearview on this topic included the following:

Every new entrant stands accused of underpaying for its licences – in addition, according to the DoT, no operator has paid any licence fees since 2002. Many stand accused of obtaining licences by corrupt means. Many stand accused of not meeting roll-out obligations. Almost every new entrant in which a domestic or, especially, a foreign company has taken a stake stands accused of breaching cross-ownership rules. Many politicians, businessmen and civil servants involved in licence award processes over more than a decade stand accused of corruption. And a large chunk of the telecommunications rule book needs to be rewritten.

But even at the end of 2011 there was no real expectation that anything untoward was about to happen – things usually move along slowly in India. During January 2012, there were a number of modest developments. For example:

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  Ravi Ruia, the billionaire vice-chairman of Essar Group, together with other executives, was charged by the Central Bureau of Investigation with criminal conspiracy and cheating in relation to the allocation of licences in 2008. The conspiracy charge concerned Essar’s relationship with new entrant Loop Telecom in which it held a stake of disputed size at the time of the 2008 licensing round.

• •

  The DoT was forced to repay roll-out failure penalties imposed on the new entrants in 2008 because it had breached the principles of natural justice.

But in early February, a bombshell was dropped by the Supreme Court which ruled that all 122 licences issued in 2008 should be revoked and re-auctioned. The licences would have to be returned within four months from the date of the ruling.

This ruling could be reviewed within 30 days, and Tata Teleservices was the first operator to file a curative petition in the light of the potential loss of three of its 20 CDMA licences. It was followed by Videocon and Sistema Shyam – understandably, since the latter stood to lose 21 licences and almost all of the $3 billion so far invested. Shortly thereafter, Etisalat of the UAE announced that it had written off its Indian venture (previously operating as Swan) which had lost all of its 15 licences, in the process taking an impairment charge of $827 million – it shut down the network on 31 March. It added that it had started proceedings against Balwa, Goenka and Majestic Infracon for fraud and misrepresentation when marketing the opportunity to take a stake in Swan Telecom.

Another write-off, this time of $721 million, was declared by Telenor in relation to Uninor, which had lost all 22 of its licences. Telenor, which had paid $1.24 billion to take a 67.25 per cent stake in Uninor, underwritten $1.63 billion of its short-term debt and racked up losses of $2 billion, added that it would be looking for a new partner in India while seeking damages from its local partner Unitech for breach of warranties related to the cancellation. In response, Unitech rejected Telenor’s claim, pointing out that the Supreme Court had not specifically accused the licensees of any wrongdoing.

Even prior to the court ruling, an offer to buy out Batelco’s minority stake in S Tel had been made by its Indian partner Sky City Foundation, but after the ruling the majority owners offered to return S Tel’s 2G and 3G licences plus its infrastructure provided there was an independent assessment of what it should be paid back for so doing.

But the fallout from the Supreme Court ruling also had severe ramifications for the DoT, which was effectively expected to run a new auction after four months. Its initial response was to declare that, in practice, it would take 400 days, or roughly 13 months, to set up a new auction. It based this on the fact that it had recently taken 688 days to auction off 3G licences. It would take the Trai, the regulator, 60 days to formulate a plan for the auction and a further 90 days for the DoT to consider this plan and to agree upon the price for each band of spectrum in conjunction with other departments of state. The auction itself would take a further 245 days.

Great care would be needed to resolve a whole range of issues including, for example, the amount of spectrum to be sold, whether to sell it on a per megahertz basis on in blocks of 1.8 MHz or 4.4 MHz and whether to prioritise new entrants. There was also the thorny matter of how to deal with the dual-technology licences held by Reliance Communications and Tata Teleservices and the 3G licences held by Idea Cellular and S Tel in circles where they no longer held 2G licences. And at the end of the day, there was the sheer scale of the operation to consider – 625 MHz of spectrum was being revoked and to this could be added 300 MHz being re-farmed from the Department of Defence.

In an interesting development in early March, the DoT also filed a curative petition, arguing that by cancelling an official government policy and prescribing its replacement, the Supreme Court had conducted an exercise beyond its jurisdiction that would have ramifications for other activities that were licensed.

The initial thoughts of the Trai appear to favour the issue of nationwide licences. This would be a radical step as it would at a stroke eliminate roaming charges when customers cross from one circle to another. They also appear to favour a uniform licence fee set at 8 per cent of adjusted gross revenue during 2012-2013. Given that almost every operator has been struggling to make profits in a fiercely competitive environment, the loss of roaming fees might not seem to be such a good idea. However, the Trai has finally recognised that there are too many operators in India, and that consolidation should be encouraged – even taking into account that a few operators such as Uninor and Etisalat are likely to be shut down as noted above. The plan proposes that if a post-merger entity does not end up with more than 35 per cent of the market, the merger will effectively go through on the nod. Furthermore, provided a post-merger entity does not breach a cap of 25 per cent of the available GSM spectrum or 10 MHz of CDMA spectrum, permission might be given to breach the 35 per cent cap on a case-by-case basis.

So, amazingly, the mobile sector in India is yet again in a state of semi-chaos, and one that seems unlikely to be resolved for at least a year. It should finally be borne in mind that tens of millions of people are going to have their signal terminated pro tem, contracts for infrastructure provision are going to be terminated, retail outlets shut and employees laid off. And all this will run in parallel with the trials of those accused of breaking the law.

Peter CurwenVisiting Professor of Telecommunications at the Department of Management Science, Strathclyde University, Glasgow, UK

Notes

1. See info Vol. 11 No. 4 (2009), Vol. 12 No. 6 (2010) and Vol. 14 No. 1 (2012)