They’re calling it a cost cutting exercise, but this could well be a precursor to pulling out yet: Etisalat’s board has taken a decision to shut down its network, suspending its services, in order to reduce its operating costs prior to any decision on 2G spectrum auctions being announced from the Department of Telecom (DoT).

This decision follows the cancellation of 122 UAS licenses issued in 2008, by India’s Supreme Court. Etisalat DB had invested in Swan Telecom following allocation of 14 licenses to them, and the subsequent (reportedly) the acquisition of licenses in two circles held by Allianz.

As of end of December 20011, Etisalat DB had 1,610,824 connections, but only 25.45% of that base was active. That’s a minor fraction of India’s active connection base of around 650 million, and the shut down would be have the cumulative impact of a pebble being thrown in an ocean, so it really doesn’t matter. What is noteworthy is that now two middle eastern telecom operators who had picked up stake in companies that benefited from the 2008 allocation appear to have halted operations: Batelco exited STel recently. Etisalat recently wrote off $827 million of its investment as an impairment chart too.

No cessation date has been communicated so far, but Etisalat and other telecom opertors have to shut down operations by June 2, 2012. What doesn’t help matters is that the Department of Telecom appears to be in no hurry to hold auctions, which puts telcos like Telenor in a tricky situation: the four month deadline for ceasing operations could arrive before auctions are completed, and their comparatively large customer base of around 40 million would be impacted. The Etisalat DB announcement:

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Etisalat DB Commences Network Shut Down

Cost Cutting a Prudent Strategy for Managing EDB’s Financial Resources

February 22, New Delhi, India – The decision of the Supreme Court of India to revoke all 122 UAS licenses issued by the Government of India in January 2008 affecting eight major operators, including several major international telecommunications companies, has removed EDB’s ability to operate from June 2, 2012. As unanimously resolved by the Board this evening, Etisalat DB will be taking steps to reduce operating costs, including the suspension of its network and services, pursuant to the terms of its UAS licenses.

The decision has been taken in order to protect the interests of all stakeholders and to avoid incurring further costs at this time of rapid change and continued uncertainty in the Indian telecommunications sector.

The Emirates Telecommunications Corporation – Etisalat believes that this is a sensible and wholly appropriate action under the circumstances. Etisalat will make a decision on its future participation in the Indian market when there is clarity on the auction process and telecommunications policy and greater legal and regulatory certainty and stability.

The factors behind the Supreme Court judgment are based on actions that took place long before Etisalat entered the Indian market and considered investing in Swan Telecom.

Further information, including the official cessation date will be communicated shortly to EDB’s customers through the appropriate channels.

At this stage, EDB would like to thank its subscribers in India for their custom, and regrets any inconvenience caused.