India’s 2G cancellation ruling sends telecom industry reeling

By Penny MacRae ,AFP

NEW DELHI — When Norwegian telecom giant Telenor entered India’s overcrowded and fiercely competitive mobile market in 2009, the Scandinavian firm insisted it would be one of the survivors. Now its investment and those of other foreign firms that jumped into the world’s second-largest telecom market lie in tatters after the Supreme Court Thursday cancelled second-generation (2G) mobile licenses issued in 2008. “It’s a shock for the foreign operators, especially as this was a ruling on a government policy decision,” Kamlesh Bhatia, India research director at global consultancy Gartner, told AFP. “They stand to lose a sizeable investment.” Telenor’s joint venture, Uninor, complained that the company was being “unfairly treated.” “We are shocked to see Uninor is being penalized for faults the court has found in the government process,” it said.

The Norwegian firm paid US$1.10 billion for a majority stake in the venture with Indian property developer Unitech, which bought a license in a distribution process that was under-priced and allegedly corrupt. Unitech was among a number of Indian companies with no telecom experience that sold stakes in their new mobile operations to foreign investors, including Gulf-based Etisalat and Russia’s Sistema JSFC, for hefty sums. The licensing sales are at the heart of one of India’s biggest corruption scandals in which former telecom minister A. Raja is alleged to have mis-sold the licenses and favored some firms, costing the treasury up to US$39 billion. Raja and a number of company executives, including a Unitech director, have been charged in the scandal which has cast a shadow over Premier Manmohan Singh’s Congress government and triggered nationwide anti-corruption drives.

Indian law allows the affected firms to seek a review of the court order and companies are weighing what action to take.