Cancelled 2G licences make up only 5% of market share

In a judgement that immediately sent some telecoms stocks tumbling and could further darken the business climate in India, the Supreme Court today, has cancelled 122 2G telecom licences granted post 2008 . It holds that 122 licences for 2G spectrum were granted in arbitrary and unconstitutional manner and has asked telecom firms to deposit bank guarantees.

Among the telecom firms 11 companies have been severely affected. Nine licences of Idea, three of Tata Tele, 21 licenses of Videocon, 22 of Uninor, 13 of Swap and 21 of Loop have been cancelled. However, despite the cancellations, there may not be a huge disruption in telecom services as the number of licences granted post 2008 make up only 5 percent of the active subscriber base in India.

In addition the supreme court has asked Unitech,S-TEL and Swan to pay Rs 5 crore as penalty, whereasLoop, S-Tel, Allianz and Sistema Shyam have been directed to par Rs 50 lakh as penalty for violating norms. Those who complied with the policy terms at the start, have not been penalised but it has gone against those firms that went against the eligibility criteria or those that violated licence norms.

According to the verdict, telecom regulator TRAI will make fresh recommendations on the grant of licences. The government will take decision on licences one month post TRAI recommendation.Moreover, the telecom firms can operate the cancelled licences for another four months on a market rate payment.

The Supreme Court judgement immediately sent telecom stocks down. Uninior and Videcon are two stocks that are likely to be impacted the most, whereas a large player like Bharti Airtel may gain from this move. DB Realty, which partnered with Etisalat to roll out telecom services, tanked over 7 percent after the judgement. 13 licences of Swan have been scrapped by the SC. Unitech plunged over 8 percent after the order as 22 of Uninor licenses have been scrapped.

However, post the judgement it seems unclear if the telecom firms will go in for a fresh round of auctions. Analysts say that the worst apprehension of foreign companies like Norway’s Telenor, UAE’s Etisalat and Russia’s Sistema have come true with this judgement. These companies had partnered with Indian firms and obtained licences by violating norms and will now have to pay a stiff price.

Reacting to the judgement, Norway’s Telenor said it has been “unfairly treated” and “was shocked” with the Supreme Court’s verdict to scrap telecom licences. “We will study the order in detail and exercise all options available to ensure that Uninor continues to operate in India,” Uninor, a joint venture between Telenor and India’s Unitech , said in a statement.

Meanwhile, RCom clarified that the company will not be impacted by the Supreme Court’s verdict as all licences have been obtained by or before 2001.Even Videocon said that most of its licenses had been granted before 2008 and will not affected much by the SC judgement.

Citigroup in a report has said that the biggest losers will be new entrants like Swan, Uninor, Sistema. They added that BhartiAirtel will be the biggest gainer as there has been no cancellation of licences for them. Moreover, with the cancellation of licences a fresh auction will take place and those prices for spectrum will be taken as base for the excess spectrum.

Jahannadhan Thunuguntla, head of research, SMS Investment and Advisors, Mumbai feels Bharti Aietel and Idea Cellular will emerge as popular brands and their strong balance sheets will be clear beneficiaries because they can take advantage of this situation and increase market share.

As far as the customers are concerned, they will have to port out to other service providers and here to large players like Bharti Airtel and Vodafone are likely to gain.

Speaking to reporters, on the judgement delivered by the Supreme Court, Subramanian Swamy said that the affected telcos have the option of paying the licence fee at market rate, adding that the verdict is the collective failure of the government of India.

Meanwhile, SC has dismissed petition to probe Chidambram’s role in the 2G scam.

Watch video: Customers won’t be affected: TRAI on 2G order