After a meteoric few months, Reliance Jio Infocomm has hit a major setback, with India’s Comptroller and Auditor General (CAG) suggesting that its 4G spectrum licence be cancelled.
The watchdog has implicated Jio Infocomm’s parent company Reliance Industries in an auction-rigging scandal that it claims took place in 2010. The CAG has conceded that the Department of Telecom failed to detect that anything was afoot despite “the tell-tale sign of rigging of the auction right from the beginning”, pointing the finger at Mukesh Ambani’s firm.
During the 2010 BWA spectrum auctions, the largely unknown ISP Infotel Broadband acquired BWA spectrum for 5000 times its net worth. Literally hours later, the company was bought by Reliance Industries and subsequently renamed Reliance Jio Infocomm, which is now the only operator to hold pan-India LTE spectrum.
CAG’s draft report indicates that Infotel violated the rules of the BWA auction by sharing confidential information with a third party. Jio Infocomm, which is currently gearing up to launch LTE services in 2015 using both TD-LTE and FD-LTE technologies, has denied the allegations.
“We reject any suggestion whereby spectrum was acquired in any manner other than through a transparent bidding process duly supervised by Government of India,” said a Reliance spokesperson. “Any allegations of so-called collusion, sharing the confidential information or rigging the auction are bizarre and completely rejected.”
Reliance has also highlighted the fact that bidding was fiercely competitive in the BWA auctions, with final bids for pan-India spectrum coming in at over six times the reserve price. “This was despite no visible evidence of any ecosystem for the BWA spectrum at the time of auction”, said a spokesperson.
The allegations are particularly damaging as they come shortly after Mukesh Ambani pledged to invest INR700 billion ($11.6 billion) in Reliance Jio Infocomm and launch 4G services next year. Trials for the operator’s 4G services are already underway.
The cancellation of its 4G licence would be disastrous for Reliance Jio considering this investment. Sanjeev Prasad, head of research at broker Kotak Institutional Equities in Mumbai, noted that “They [Reliance Jio Infocomm] are spending huge amounts of money, and unless they win substantial market share in our already-crowded voice and data markets, this business is just not going to earn the kind of return that investors would expect.”
Reliance Jio Infocomm was the dark horse of this year’s spectrum auctions, spending $1.7 billion for pan-Indian frequencies including the lucrative circles of Delhi, Kolkata and Mumbai. The firm has been throwing its money about of late, acquiring a majority stake in content provider Network 18 and signing a tower-sharing agreement with Reliance Communications.