Government has been jolted by controversy over licences and radio airwaves that a state auditor says were given out too cheaply, depriving the government of up to $39 billion in revenues. The telecom minister, A Raja was forced to resign and the Prime Minister Dr Manmohan Singh has been asked to
explain himself to the Supreme Court. Opposition parties want a full parliamentary probe and have blocked proceedings until the government relents. So, what is the controversy all about and what does it mean for the telecom sector and companies?
WHERE WAS THE ALLEGED SCAM?
In 2008, the country issued 122 new telecom licences and the second-generation radio spectrum bundled with it to several domestic companies that had little or no experience in the telecom sector, and at a price set in 2001.
The state auditor said that the allocation process did not reflect the correct value of radio spectrum as there was no auction and the entire process was flawed, benefiting selected companies.
The auditor said that the telecoms ministry did not do the requisite due diligence, granting 85 out of the 122 licences to ineligible applicants.
The auditor also said the ministry did not follow its own guidelines, changed the cut-off date for applications, which gave "unfair advantage" to some companies over others. It said that the entire process "lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner".
The auditor said that several companies deliberately suppressed facts, disclosed incomplete information, submitted fictitious documents and used fraudulent means to get licenses and thereby access to spectrum.
WILL COMPANIES LOSE LICENSES?
The auditor said that units of Unitech Ltd, which received licences in 2008 and now operates services in a joint venture with Norway's Telenor, had not fulfilled eligibility conditions including required share capital.
Other firms which were ineligible according to the auditor include Loop Telecom, Videocon Telecommunications and S Tel Ltd. The auditor said that Swan Telecom, which has since been partly acquired by the UAE's Etisalat , was given licences even though a unit of No. 2 telecoms firm Reliance Communications held over 10% of equity, a violation of rules.
It is still to early to know whether any licenses would be canceled, but the pressure would be strong not to do so because operators have invested in networks and have subscribers.
Any big crackdown could send a wrong signal to investors.
But the government could ask operators to compensate for the potential revenue loss as highlighted by the auditor and may impose fines for not meeting separate rollout obligations.
The auditor also named nine other operators, including market leaders Bharti Airtel , Reliance Comm and Vodafone , who were allotted spectrum beyond the contracted limit without paying any upfront charges, costing the government a potential $8 billion.
WHAT DOES IT MEAN FOR TELECOM MARKET?
If the government imposes heavy fines on new licensees singled out in the auditor's report, it would weaken them further. The newer operators are yet to make profit as they offer heavy discounts to grab subscribers, and any financial penalty would be a blow for them, forcing some to leave the market.
Some operators may also freeze network expansion until clarity emerges on the regulatory front, meaning slower growth for network equipment vendors and other service providers.
In case licenses are canceled, it would lead to natural consolidation in the crowded 15-player market.
WILL THIS AFFECT FDI INTO INDIA?
The country's mobile phone market is the world's fastest-growing and its nearly 700 million users trail only China, making it a must-invest market for any major global operator. But regulatory uncertainties have been a concern for some and could make foreign companies start to look more carefully where to invest.
Any penalty or adverse regulatory action could also weigh on companies such as Telenor and Etisalat, which were not part of their respective domestic ventures when the licences were distributed. Also, the controversy would make future investors more careful before they decide to invest in the market.
Vodafone, the single-biggest foreign investor of the nation, is fighting a $2.5 billion tax bill over its acquisition of a mobile firm in the country and has signalled frustration with the regulations.
explain himself to the Supreme Court. Opposition parties want a full parliamentary probe and have blocked proceedings until the government relents. So, what is the controversy all about and what does it mean for the telecom sector and companies?
WHERE WAS THE ALLEGED SCAM?
In 2008, the country issued 122 new telecom licences and the second-generation radio spectrum bundled with it to several domestic companies that had little or no experience in the telecom sector, and at a price set in 2001.
The state auditor said that the allocation process did not reflect the correct value of radio spectrum as there was no auction and the entire process was flawed, benefiting selected companies.
The auditor said that the telecoms ministry did not do the requisite due diligence, granting 85 out of the 122 licences to ineligible applicants.
The auditor also said the ministry did not follow its own guidelines, changed the cut-off date for applications, which gave "unfair advantage" to some companies over others. It said that the entire process "lacked transparency and was undertaken in an arbitrary, unfair and inequitable manner".
The auditor said that several companies deliberately suppressed facts, disclosed incomplete information, submitted fictitious documents and used fraudulent means to get licenses and thereby access to spectrum.
WILL COMPANIES LOSE LICENSES?
The auditor said that units of Unitech Ltd, which received licences in 2008 and now operates services in a joint venture with Norway's Telenor, had not fulfilled eligibility conditions including required share capital.
Other firms which were ineligible according to the auditor include Loop Telecom, Videocon Telecommunications and S Tel Ltd. The auditor said that Swan Telecom, which has since been partly acquired by the UAE's Etisalat , was given licences even though a unit of No. 2 telecoms firm Reliance Communications held over 10% of equity, a violation of rules.
It is still to early to know whether any licenses would be canceled, but the pressure would be strong not to do so because operators have invested in networks and have subscribers.
Any big crackdown could send a wrong signal to investors.
But the government could ask operators to compensate for the potential revenue loss as highlighted by the auditor and may impose fines for not meeting separate rollout obligations.
The auditor also named nine other operators, including market leaders Bharti Airtel , Reliance Comm and Vodafone , who were allotted spectrum beyond the contracted limit without paying any upfront charges, costing the government a potential $8 billion.
WHAT DOES IT MEAN FOR TELECOM MARKET?
If the government imposes heavy fines on new licensees singled out in the auditor's report, it would weaken them further. The newer operators are yet to make profit as they offer heavy discounts to grab subscribers, and any financial penalty would be a blow for them, forcing some to leave the market.
Some operators may also freeze network expansion until clarity emerges on the regulatory front, meaning slower growth for network equipment vendors and other service providers.
In case licenses are canceled, it would lead to natural consolidation in the crowded 15-player market.
WILL THIS AFFECT FDI INTO INDIA?
The country's mobile phone market is the world's fastest-growing and its nearly 700 million users trail only China, making it a must-invest market for any major global operator. But regulatory uncertainties have been a concern for some and could make foreign companies start to look more carefully where to invest.
Any penalty or adverse regulatory action could also weigh on companies such as Telenor and Etisalat, which were not part of their respective domestic ventures when the licences were distributed. Also, the controversy would make future investors more careful before they decide to invest in the market.
Vodafone, the single-biggest foreign investor of the nation, is fighting a $2.5 billion tax bill over its acquisition of a mobile firm in the country and has signalled frustration with the regulations.
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