2G verdict: Call tariffs set to head north

The Supreme Court's verdict cancelling the 123 licences allotted by former telecom minister A. Raja in January 2008 may prove to be a game changer as non-serious players may back out with mergers or acquisitions (M&A).

The development is expected to help leading operators - including Bharti Airtel, Vodafone and Idea Cellular - gain additional market share because the affected mobile operators' customers may also port out within the next four months.

But the flip side of the verdict is that the subscribers might have to bear massive tariff hikes by the established operators, who have been complaining of thin margins and even losses. A top official, working with a telecom company affected by apex court order, told Mail Today that they were serious about establishing themselves in the Indian market. "So we will bid for the spectrum in the auction but subsequently would need to increase the tariffs," he added.

The tariffs will automatically rise in view of fewer competitors, unlike now when there were up to 14 players in the Indian market. Most of the affected companies have already started looking for an escape route through the M& A. But since the new telecom policy is yet to be formally announced, these operators have been left in the lurch.

The telecom sector may be struggling for extra funds but there is no dearth of investors, who are ready to take over or merge with the established companies," a top financial adviser with a leading telecom company opined.

Loop Telecom in a statement said: " Loop Telecom was not in any manner involved with, and did not benefit from the changes which were made to first come first serve policy, including the notification of a cut- off date for applications and the changes in the terms of the Letter of Intents ( LoIs) issued on Jan 10 2008.

Loop's applications for new licenses were made pursuance to the policy announced by the government in August 2007 and with the intent of expanding its presence from a single circle to a pan India operation. Loop Telecom did not sell any of shareholding after having received such license.

Loop Telecom shall await the implementation of judgment by the government authorities."

Unlike 2008, when the new entities got a pan-India telecom licence bundled with the start- up spectrum for Rs 1,650 crore on the first-come-first-served basis, the operators will now have to pay Rs 20 crore for licence and an additional, much higher amount, based on the spectrum auction price. The new norms will be applicable when the government auctions the spectrum in the next four months.

The government had earned over Rs 67,000 crore by auctioning 3G spectrum in May 2010, but than Rs 9,600 crore went to exchequer through the 2G licences in 2008. A report submitted by the Comptroller and Auditor General ( CAG) calculated, on basis of the amount generated through the 3G auction, that the loss to the exchequer due to underpricing of the 2G spectrum Rs 1.76 lakh crore.

"The auction will burn holes in our pockets. We are already going through tough times. The banks are not lending to the telecom sector. How do we go ahead?" a top executive voiced the telecom sector's dilemma.

The verdict will have serious ramifications for operators like Uninor, Loop, Sistema Shyam, Etisalat DB and S- Tel. Uninor and Videocon with Etisalat have turned out to be the biggest losers and lost almost all licences.

There are 23 telecom circles in India. Uninor and Videocon lose 22 and 21 licences respectively.

Within four months from now, Uninor, Videocon, Etisalat and STel must de-link their licences allotted in 2008 and later. The cancelled licenses will then be auctioned as per the suggestions made by the Telecom Regulatory Authority of India (Trai).

While Uninor will have to bid during the auction in all 22 circles, Loop will bid in 21, Videocon 21, Sistema Shyam 21, Etisalat DB 15 and STel in six circles.



Keywords: Supreme Court, telecom minister ,A. Raja, Bharti Airtel, Vodafone , Idea Cellular ,Indian market,telecom sector , investors, Loop Telecom , India operation, Comptroller and Auditor General , CAG,Uninor, Loop, Sistema Shyam, Etisalat DB ,S- Tel. Uninor , Videocon ,Telecom Regulatory Authority.