2G verdict has larger ramifications for industry

The Supreme Court’s decision to scrap 122 2-G spectrum licences bought at throw away prices during 2008 has not only come as a big blow to the companies who have to shell out more for repurchase of the airwaves but also increased anxiety of the UPA government which has already approved hefty foreign investment in these ventures.

The court revoked the licences granted on first-come-first-served [FCFS] basis to new players like Uninor, Etisalat, Sistema Shyam, Loop, STel, Videocon, etc and asked government to auction spectrum within four months.

The government had in the past approved large foreign investments in their ventures with Indian companies like Unitech and DB Realty.

What happens now?

After the cancellation, there will be a re-bid process, for which the apex court has given four months time. In the re-bid process, it is more likely that many of the players may not participate. In other words, the less serious ones will leave the telecom space. Automatically, the move will cause a reduction in the number of telecom players and lower the competition from the market. 

At the moment, who stands to gain among the telecom players is uncertain , according to market watchers. But, it appeaqrs that, Uninor is the most affected company because it has already rolled out its sevices in 22 circles, has 36 million subscribers and employs 17,500 people.   

“We have been unfairly treated as we simply followed the Government process we were asked to. We are shocked to see that Uninor is being penalised for faults the court has found in the Government process. We will study the order in detail and exercise all options available to ensure that Uninor continues to operate in India,” said Uninor in a statement.

Although the largest telecom player Bharti Airtel, prima facie emerged as the biggest beneficiary, as its shares shot up 4 per cent soon after the verdict on the hope that the company may get more subscribers, telecom analysts said it may have to pay more as and when the government auctions spectrum in future.

This will also mean a rise in tariffs by remaining telecom players in the market, who may resort to pushing up call charges faster, but telecom analysts are of the view that it will eventually remove hyper competition from the market and give way to healthy competition. “We may expect higher tariff for now, but we should not lose sight of the fact that the sudden crash in prices, as it happened post-2008, is not sustainable,” Mahesh Uppal, a telecom analyst and Director of consultancy Com First India told Deccan Herald.

As far as the subscribers are concerned, the affected numbers will be just around 5 per cent of the total 900 million subscribers base. Moreover, they can also change to any other service provider. Uppal was also of the view that even after cancellation of these 122 licences, India has more than six to seven players in each service area and that they will still contribute to healthy competition in the market without overshooting the tariffs as feared. Market watchers are of the view that the move to bring in auction process for spectrum will remove uncertainty from the telecom sector.

As for the FDI inflow, those in government or private arena, have kept their fingers crossed. “In the short run, it may affect the overseas investment, but in the long run only those who are hunting for bargain will stand to lose,” said Uppal. The judgement, as expected, sent shares plunging for affected companies.