India 2G spectrum case: Supreme Court revokes 122 telecom licenses

India's Supreme Court on Thursday revoked 122 telecommunications licences associated with the so-called 2G spectrum scam, in a judgement that will send a shiver down the spine of foreign investors.

Licenses held by five companies including the local joint ventures of Norway's Telenor and Abu Dhabi's Etisalat were cancelled in the verdict, calling into question the stability of business contracts and regulation in India, the Hindustan Times reported.

The court also ruled that the current licenses will remain in place for four months, during which the government should decide how to issue new licenses for 2G spectrum, the paper said.

While some hailed the judgement as a serious blow to corruption – since it effectively punishes the businesses that benefited from alleged inproprieties in the allocation of the licenses – in a separate judgement the court declined to urge the Central Bureau of Investigation to look into the alleged role of Home Minister P. Chidambaram in the scandal, according to the Deccan Herald.

Chidambaram, who was finance minister during the controversial allocations of telecom licenses in 2008, has been accused of signing off on the transactions by former telecom minister A. Raja (now residing in New Delhi's Tihar Jail with his corruption trial underway).

Subramanian Swamy, an opposition lawmaker and president of the Janata Party, had sought a Supreme Court directive to the CBI to probe Chidambaram's alleged role in the affair.

The so-called 2G telecom spectrum scam, as it came to be known in the Indian press, was one of the major reasons for the rise of a popular protest movement against corruption this summer — which saw tens of thousands of people take to the street in support of activist Anna Hazare's call for a national ombudsman. Essentially, the case hinged on a decision by Raja to allot the licenses on a supposed first-come-first-serve basis instead of auctioning them to the highest bidder. Subsequent investigations appeared to reveal kickbacks through a host of shell corporations, though the criminal case is still underway and no verdicts have been rendered.

According to FirstPost, the cancellation of the telecom licenses could have implications for the Indian banking sectory, where telecom loans make up 3 percent of the banking portfolio and 19 percent of the infrastructure loans. Since the licenses were the collateral for the loans, once the licenses are revoked the loans will convert to bad assets.

At the same time, the cancellation could speed consolidation in the telecom sector and eliminate players that were essentially parking spectrum to sell it onward, FirstPost argues elsewhere: “Whatever the future holds, one thing is clear: the total number of players remaining in the field after the licence cancellation will be smaller than what Raja unleashed. Not all players will want to remain in the business if they have to pay even more for spectrum when business is tough anyway.”

That could be a good thing for the business and a good thing for consumers, FirstPost suggests.

“In January 2008, Raja scattered telecom licences like confetti – with some shown special favours – and unleashed hyper competition,” FirstPost writes. “This has made large parts of the industry unviable. Like the airline industry, which is unable to raise fares and invest adequately in safety and new aircraft, the telecom industry – to stay afloat — has cut corners in terms of the quality of service and is grossly underinvested in infrastructure. This is why call quality in several areas is below par.”
 

I'll echo that last sentence. But I'm not so sure consolidation will make matters much better.