UPA humbled: 9 implications of SC judgement on 2G licences

The Supreme Court’s decision to cancel all the 122 telecom licences issued by jailed former Communications Minister Andimuthu Raja on 10 January 2008 will have wide ramifications. However, the affected licensees have been given a four-month window in which to negotiate with the government on renewing the licences by paying market-based prices for spectrum. The government will have to work out the modalities for this repurchase of spectrum.

This decision, which will affect every major licensee - from Reliance Communications to Tata Teleservices, Idea, Videocon, Aircel, Loop, S Tel and many others, including the controversial Swan Telecom and Unitech Wireless - has major political and economic implications.

First, since the cancellation amounts to an indictment of the way Raja and the UPA government issued those licences, it is not only a setback for the former - who is accused No 1 in the 2G scandal - but a huge embarrassment for the government.

The judgment, delivered by Justices AK Ganguly and GS Singhvi, is a stinging indictment of the UPA’s governance record since the licence issuance process was a government decision - even if Raja was the one to hijack it. Both PM Manmohan Singh and former Finance Minister P Chidambaram come off looking like weak players, unable to stop Raja’s excesses.

Second, two major companies - Swan Telecom and Unitech Wireless, whose promoters are now being tried in the 2G scam - have been singled out for punitive penalties of Rs 5 crore each in this case apart from losing their licences. This means their chances of continuing in business will be an uphill task.

A third implication of the judgment is that many of the licensees may now seek a legal recourse - raising the possibility of a prolonged policy paralysis caused by court cases.

The fourth implication is that the licences that are cancelled will now have to be rebid for at higher market-based prices. This could automatically cause a reduction in the number of players in each telecom circle, since the less serious players may now opt out.

Fifth, since the short-term impact of the cancellation of licences is that the older licensees will have greater freedom of action in their established circles, telecom operators may be able to push prices up faster. So expect a hike in your mobile bills.

Sixth, since the list of licences cancelled involves more players than the ones the Central Bureau of Investigation (CBI) has proceeded against, it means more companies may have to be probed by the CBI.

Seventh, given the judgment, it is clear that future spectrum licences will be given only at market-determined prices or through auctions. This comes as a vindication for the Comptroller and Auditor General’s claim of a Rs 1,76,000 crore presumptive loss in the 2G scandal. It also rubbishes Kapil Sibal’s zero-loss claim in Raja’s 2G licences.

The cancellations, while they have no direct implications for the current trials underway against Raja, his cohorts, and various business executives from Reliance ADAG, Swan Telecom and Unitech group, raises the issue of the moral culpability of Raja’s actions in January 2008.

Eighth, since the then Finance Minister P Chidambaram and the Prime Minister were in favour of auctions of spectrum, but were still browbeaten by Raja to go with 2001 prices, it speaks poorly of their ability to defend the exchequer’s interests.

Ninth, since the judgment will cause a rethink of the entire telecom policy, one can expect a huge slowdown in fresh investments in this sector. Foreign investment, particularly, will be cautious till the policy framework is clarified.

The judgment means the new telecom policy announced by Communications Minister Kapil Sibal will have to be redrawn based on the court’s judgment.

It is back to square one.

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