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Indian 2G licences revoked; operators reject ruling

In a shock development, the Indian Supreme Court has annulled all of the country’s 122 2G licences due concerns over the legitimacy of the 2008 licensing process. It is claimed that, under the leadership of disgraced former telecoms minister A Raja, the licences were sold not on a first-come-first served basis rather than as part of a competitive auction – losing the government revenue worth billions of dollars.

The court declared the licensing process to be “totally arbitrary and unconstitutional”. One of the case’s petitioners, Subramanian Swamy, noted: “This is a major step forward for us in the war against corruption.”

Since the licences were issued, eight new operators have begun offering services in India, among them Telenor subsidiary Uninor, Loop Telecom, Etisalat DB and Tata Teleservices. All of the 2G licensees will be required to shut down their operations after four months.

Licensing controversy has dogged India for some time now, with many of the licence winners receiving vast payouts for stakes in their mobile operations. Among the buyers were international heavyweights such as Telenor and Etisalat, both of which have previously been implicated in licensing scandals – an involvement which each operator attributed to its local partner.

Telenor has stated that it has “yet to review the ruling and will be able to comment further once we have a chance to review it”, while Etisalat has gone further to distance itself from the original licensing process, stating that: “The Supreme Court decision relates to events that occurred in January 2008, well before December 2008 when Etisalat invested in [local operator] Swan. Etisalat has no knowledge of what occurred in the licence application process for Swan, far less did it have any involvement.”

Such an extreme ruling was somewhat unexpected, with many industry observers expecting that an independent inquiry into the licensing process on a case-by-case basis would have been more likely as this would have permitted certain operators to continue providing services. However, the Supreme Court has now tasked the Telecom Regulatory Authority of India (TRAI) with creating a new auctioning process.

The regulator has invited industry input but set a strict deadline of February 15th. It is widely expected that the licensing process will be similar to 2010’s 3G auctions, which drew in around US$14 billion for the government. However, the process is facing resistance from operators angry at being stripped of their licences.

Both Telenor and Russian firm Sistema (which owns MTS India) have stated that they will resist the court’s ruling and intend to continue providing services. Telenor CEO Jon Fredrik Baksaas said that "the ruling is a very serious attack on our investments, (which are) based on the licence framework that was spelt out in 2008."

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