2G Scam: Supreme Court Scraps 122 Telecom Licenses

The Supreme Court of India today cancelled 122 2G spectrum licenses granted by tainted ex-telecom minister A Raja in January 2008 on the grounds that the licenses were granted in a “totally arbitrary and unconstitutional manner.” This development has not only come as a major blow for the telecom industry but will also have far-fetched implications on the whole of corporate India. 

The Telcos that are set to lose their licenses are Uninor (22), Loop Telecom (21), Sistema Shyam (21), Etisalat DB (15), S Tel (6), Videocon (21), Tata (3) and Idea (9). The stocks of listed telecom companies like Reliance Communications, Idea Cellular and Unitech tanked by 10 per cent, 5 per cent and 15 per cent respectively when the news hit the markets. In fact the Sensex also gave up its early morning gains and reached its day’s low of 17,308.28, just 0.04 per cent above yesterday’s closing price. These scrips have managed to recoup part of their losses, but with the exception of Idea, Rel Comm and Unitech, have closed the session on a negative note. The Sensex also managed to pull itself back up from the day’s low and closed up by 0.76 per cent at 17,431.85. 

India’s largest telecom company, Bharti Airtel, has largely benefited from this development and its shares closed the day higher by 7 per cent at Rs 385.95 per share. As a result of these license cancellations, the business prospects of the Sunil Bharti Mittal-led telecom company have brightened up as it will now enjoy a larger pie of the telecom market. 

Further in its ruling, the SC has imposed punitive penalties on Unitech Wireless and Swan Telecom amounting to Rs 5 crore each. It has directed the Telecom Regulatory Authority of India (TRAI) to initiate fresh recommendations on the allocation of 2G licenses and asked the GoI to take necessary steps on the recommendations of TRAI within a month’s time. Finally it has stated that the allocation of new spectrums will be done between a time span of four months. During this time the affected parties will be allowed to negotiate with the government on renewing their licenses by paying market-based prices for the spectrum. However, the modalities for this repurchase of spectrum are yet to be worked out. 

As a recap of events, the SC order has come on the back of petitions filed by Janata Party president Subramanian Swamy alleging a scam in the allocation of spectrum licenses by the telecom ministry under A Raja in January 2008 during the tenure of the UPA-I government. These licenses were given for a total price consideration of around Rs 9,000 crore and the actual nature of the 2G scam came into emergence when the 3G licenses were auctioned for a whopping sum of Rs 69,000 crore. 

In its reaction on the verdict, Uninor (JV between Unitech and Telenor of Norway) said it has been unfairly treated and was shocked by the SC verdict to scrap the telecom licenses. The company in a statement said that it would study the order in detail, exercise all the available options and ensure that its operations in India continue in the future. Anil Ambani-led Rel Comm has issued a press statement on the BSE stating that all licenses issued to them were in 2001 or the prior period and hence they won’t be affected. 

In conclusion, this move by the SC will have many negative as well as positive implications on the telecom industry as well as India Inc. Given that the distressed telcos have the option of taking the legal route, one may expect prolonged periods of court hearings which would create an over-hang on the entire industry environment and consequently put off the foreign investors. Having said that, on the positive side this would lead to a reduction in the number of players in the industry and ensure that only the serious players stay in the race. Benefited by less number of players, established old telcos whose licenses are still intact can increase their billing rates, which will boost revenues. Most important of all, it sends out a strong message to global investors wishing to invest in India that the law of the land will always be upheld.