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2G License Cancellation Verdict: What The Telcos Are Saying

The Indian Supreme Court cancelled 122 licenses issued to nine telecom operators by the UPA government in January 2008, yesterday. Affected telecom operators have issued statements reacting to the verdict:

Telenor says the option to quit is still there: Telenor sent across a note yesterday saying that it has yet to review the ruling would comment later, but an Economic Times report quotes Telenor CEO Jon Fredrik Baksaas as saying that the option to quit was on the table after calls by investors and analysts putting pressure on the company. He said that the ruling was a very serious attack on the company’s investments, based on the licence framework that was spelt out in 2008 and said that it is an action that it had never seen in any country before.

Idea Cellular says only 6M subscribers in 7 circles impacted: Idea Cellular’s 13 licenses which include its own 9 licenses and 4 licenses of erstwhile Spice Communications which it had acquired and merged, have been cancelled. It claims that the judgement impacts only around 6 million subscribers, accounting for about 5% of its cumulative Capex, 4% of its revenue, and that the seven circles impacted are EBITDA loss making circles. The seven circles it says are impacted include Tamil Nadu, Kolkata, West Bengal, Orissa, Assam, NESA and Jammu & Kashmir, and the remaining 2 licenses (of Idea Cellular) and 4 licenses (of the erstwhile Spice Communications) it claims are non-operational.

On the rationale behind the cancellation, Idea claims that it is unnecessarily being hauled up, because it had applied for 9 licenses in 2006, and as per then stated Government’s “first come first serve” policy, should have been granted the licenses much before January 2008; it contends that the Supreme Court seems to have been recognized this and not imposed a penalty on the company.

COAI’s response: The COAI or Cellular Operators Association of India points out that the executive (i.e. the government) needs to be sensitive to issues faced by operators who have made large investments – in network, services, staffing and training, which it says are now in jeopardy for no apparent fault of theirs. The body is “hopeful” for a balanced approach which ensures that the misdeeds of a few are not visited on the many. It is supporting a fair market-price based auction.

Loop Telecom says verdict in line with what it wanted: Loop Telecom said that had submitted to the Supreme Court (during the course of the hearing of the PILs) on 9th March 2011 that it was not interested in profiteering from mispriced allocation of spectrum, and had offered to the Supreme Court that the licenses issued be taken back and re-auctioned so as to establish a fair market price for the spectrum.

It claims that it did not benefit from the changes which were made to the first come first serve policy, including the notification of a cut off date for applications and the changes in the terms of the LoIs issued on 10.01.2008, and its application for new licenses was in accordance with the governments 2007 policy, looking to expand its presence to from a single circle to a pan India operation. Remember that Loop Telecom did not sell any of its shareholding after having received such license, it added.

Etisalat says it invested in Swan before allocation: Etisalat points out that the Supreme Court decision relates to events that occurred in January 2008, well before December 2008 when Etisalat invested in Swan. It claims to have no knowledge of what occurred in the license application process for Swan and says it had no involvement in it, saying that the license applications were entirely conducted by the promoters and their associates who subsequently marketed the Swan investment opportunity to Etisalat through a well known international investment bank. The company says it will work with EDB’s management and legal counsel to understand the judgment, its ramifications on the operations of EDB, particularly its customers and employees as well as its right to a review of the Supreme Court’s decision.

Note: we’ll update this post as and when we get more reactions from telecom operators and industry bodies.

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