Telenor, DoCoMo run for cover after SC judgment

Written by Nikita Upadhyay | Nikita Upadhyay | Mumbai | Updated: Feb 3 2012, 09:03am hrs
The Supreme Courts order on Thursday to cancel 122 2G licences issued in 2008 has dealt a blow to Norways Telenor ASA, Japans NTT DoCoMo, Russias JFSC Sistema and UAEs Emirates Telecom or Etisalat.

The companies, now left in the lurch after having made heavy investments in the past few years to roll out mobile network, are demanding protection for their investments.

We, as a group, have already invested over R6,100 crore in equity and over R8,000 crore in corporate guarantees as a foreign investor that trusts a licence stamped by the Government of India, said Glenn Mandelid, communications manager, Telenor Asia, in an email statement. We look to the government to arrive at a fair outcome that doesnt jeopardise our lawful investment and urge it to ensure that a foreign investor that had nothing to do with these processes is not harmed.

The Supreme Court cancelled 15 licences of Etisalat DB Telecom, majority owned by Emirates Telecom, 22 of Telenors unit Uninor, 21 of Sistemas unit Sistema Shyam Teleservices and three of Tata Teleservices, in which NTT DoCoMo holds 26%.

Telenor ASA and Emirates Telecom said licence applications were entirely conducted by the Indian promoters and they were not involved in any wrongdoing. They now plan to review the order and take necessary steps to safeguard their investment.

The new entrants have been making losses as they compete with established rivals at lower trariffs. Their participation depends on the reserve price or the base price for the auctions, as their balance sheets are bleeding, said Prashant Singhal, leader, telecom practice, Ernst & Young. Asking them to cough up something to the tune of R6,000-7,000 crore more could lead to substantial erosion in foreign investments by the leading international operators.

It would be negative if the government benchmarks 2G spectrum auction price to 3G, Singhal added. According to him, if this happens, then serious players might lose interest and look at for other geographies like Africa, Vietnam, Indonesia or even South America.

Smaller operators will be faced with few options. "While we expect them to explore all possibilities, and the situation remains fluid, on the face of it some of these smaller operators will be faced with the choice to either close operations or re-bid for licenses - although the timing and terms of a possible re-auction of the reclaimed spectrum has not been announced," said Nitin Soni, associate director, Fitch Ratings said on Thursday. "It is unclear whether some players will have the stomach or resources to invest more to defend businesses which are still in start-up mode."

Some companies may use the judgment to exit.

This will provide a good exit option for operators who have not rolled out and not willing to roll out in future, says Hemant Joshi, partner at consulting firm Deloitte Haskins and Sells. The auction process could lead to higher outflow from cash strapped operators since the spectrum price could be higher now and could adversely impact consumers, he said.

Consultants feel that the SCs verdict will separate non-serious players from the serious ones. Companies who have done well in rolling out their networks and creating a brand will remain invested, but will be cautious in their approach while taking investment decisions, said Binoy CS, director, ICT practice at research firm Frost & Sullivan. The issues which arise from the verdict, unless resolved quickly, will create lot of unwarranted uncertainties that will have negative impact on foreign investment in India.

However, the cancellation of licences will benefit established players as this will ease tariff competition and attract more subscribers.