Column : Look at track record of 2G firms

Written by Rishi Raj | Updated: Feb 10 2012, 09:21am hrs
With the Supreme Court cancelling the 122 licences given by former telecom minister A Raja in January 2008, there have been demands by certain commentators and analysts that the government should compensate the companies who got the licences and made investments in the sector. The rationale being that the companies were not at fault because they had got a licence from the government and had made investments on that basis. If there was any illegality in the process, it was the fault of the government and not of the companies so why should they suffer Norways Telenor, which has 67.25% stake in one such company Uninor, has been the most vociferous in pursuing this line of argument.

On surface, the logic seems fine but there are problems in pursuing this line of argument. Companies like Uninor and Etisalat DB (formerly Swan in which UAEs Etisalat picked up 45% stake) are charge-sheeted by the Central Bureau of Investigation (CBI) for conspiring with Raja to get the licences fraudulently. Trial is already on in the matter in the special CBI court. It would not be proper to talk of compensation for these two companies until the trial is complete.

Coming specifically to Etisalat DB, this company was the one to jump the maximum the queue of first-come first-served (FCFS) and gained the maximum on the policy front also in the sense that an amendment was made in the licence conditions to enable it to start services through intra-circle roaming pacts. This means that services could be started even before laying full and proper networks. The company also entered into an MoU for such roaming pacts with the state-owned BSNL. Despite this, Etisalat DB today has no subscribers and network to show on ground. Whatever meagre subscribers it has are paper subscribers. The Telecom Regulatory Authority of India (Trai) recommended in November 2010 that all its 15 licences should be cancelled on the grounds of not rolling out services on time as mandated in the licence conditions. Does a company having such dubious record deserve any kind of compensation

Coming to the case of Telenor, there is no doubt that it is the only operator among the new ones to have shown some performance on ground. It has some 36 million subscribers and has rolled out services in 13 of the 22 circles in which it has licences. So, it getting peeved at the cancellation of licences is understandable to an extent. But would it not be proper for the company to settle the matter with its junior partner Unitech first, from which it bought the stake in 2008. One does not know but, ideally, Telenor should have entered into some form of agreement with Unitech about compensation and exit clauses if the licences came under any cloud. After all, anybody tracking India knew the manner in which the licences were granted and the uncertainties which came with it.

In this context, the case of Bahrain Telecom (Batelco) is important. The company also bought stakes in STel, which was one of the Raja licensees and, on Wednesday, it sold back its entire stake in the company back to the promoters of STel at the same price at which it had bought the stake. This honourable exit was possible because it had entered into some such kind of agreement with the promoters of Stel.

The case of Telenor is complex from another angle. The company says it would participate in the auctions which the government has to conduct as per the SCs judgment. It has even demanded that for the sake of fair play any such auction should be confined to the newer players and not the incumbents. The problem is that Telenor and its junior partner Unitech are involved in a bitter fight. What is the issue Telenor wants to come out with a R8,000 crore rights issue to fund its expansion plans in the country and Unitech, in contrast, wants money to be raised through debt. It first needs to answer whether its junior partner, not keen to participate in the rights issue, would be willing to put in money for fresh auctions If the answer is no, it would need a new Indian partner. If Unitech agrees to quit, what would be the terms and conditions It would be proper for Telenor to focus on these issues on which it is silent so far before asking for compensation or the terms and conditions of the fresh auctions.

Quite similarly, Etisalat should sue its Indian partner Swan and seek compensation from it for not disclosing vital information to it. In the case of Swan, a money trail has also been found leading to an outfit of DMK of which Raja is a member, thus making a perfect case for Etisalat to seek compensation from the promoters of Swan.

The case for compensation, if it arises, seems best justified in the case of two Indian operators who also got licences in 2008 along with the newer ones. These are Idea Cellular and Tata Teleservices. While Ideas seven licences have been cancelled, TTSL loses three of its CDMA ones for Northeast and Jammu & Kashmir. The two companies were not new operators who had entered into the telecom sector seeing the high valuations of 2007-08. They were existing operators with a reasonably high subscriber base and wanted to expand their operations into newer circles. They had applied for licences in 2006 and if Raja had not tweaked the FCFS norms, TTSL would have been the first in queue and Idea second. However, with Raja tweaking the FCFS, the two lost their seniority. Further, ideally their licences should have been processed much earlier rather than getting clubbed with the newer operators.

Since the Supreme Court has clubbed all the licences together, the government should see what best it can do for the operators who were not new and have contributed by way of investments and increasing the tele-density.