Times of India (May 4, 2012)
Facing new regulation and retroactive taxation, telecommunication
companies in India are revolting – foreign companies are pulling out of
the country, local executives who were once cozy with government are
publicly condemning official policies, and several operators are suing
or threatening to sue the Indian government.
“We have probably the most destructive regulatory environment virtually
since the inception” of this sector, said Sanjay Kapoor, chief
operating officer of Airtel’s South Asia operations, during a meeting
Thursday of telecommunications operators in New Delhi organized by the
Cellular Operators Association of India. “The recommendations are
flawed and retrograde, regressive and uncertain in a fashion that it
would irreparably harm consumer interest.”
The Indian telecom market is the second largest in the world after
China by the number of customers, with an estimated 911 million
connections. Telecommunications has been one of the most vivid examples
of the benefits of liberalizing India’s quasi-socialist economy, as
consumers rich and poor bought mobile phones. In recent years, the
industry’s fast growth drew major players from around the world,
several of whom are now closing shop or threatening to pull out.
On Wednesday, the chief executives of telecommunications companies met
with a group of ministers to discuss the telecom regulator
recommendations on unified licenses and auction of spectrum. “We urge
the Indian Government to take its rightful political initiative now,”
Jon Fredrik Baksaas, president of Telenor Group of Norway, a partner in
the local telecom company Uninor, said Wednesday. “This is the time to
ensure that the policy made for the telecom license auctions allows
affordability, competition and investments to remain in India,” he
said. Sunil Mittal of Bharti Airtel, Kumar Mangalam Birla of Idea
Cellular and Vittorio Collao of Vodafone Group were also at the meeting.
Telenor Group was one of the 122 companies whose wireless phone
licenses were ordered to be scrapped by the Supreme Court in February
because they had been sold at rates far lower than the market price, in
a corruption scandal popularly dubbed the “2G scam.” Several companies
including Etilsalat DB, S-Tel, Loop telecom, Unitech Wireless (or
Uninor) and Siestema Shyam took a hit. Executives say they are dismayed
at being penalized for faults in the government licensing process.
Soon after the Supreme Court’s decision, India’s telecommunications
regulator, the Telecom Regulatory Authority of India (TRAI) , made
recommendations for a new round of bidding, including setting a higher
reserve price, conditions for expansion and support for “spectrum
refarming,” or using the spectrum already available for different
purposes or better technology. In the case of the telecom sector better
technology would mean moving from “2G” to “3G” or higher. Refarming,
telecom operators charge, will deal a fatal blow to the telecom sector.
TRAI had also recommended a base price which is approximately ten times
the minimum price for spectrum allocated for 2G services in 2008, and
auctioning off just 20 percent of available spectrum, a move the
telecom executives say will artificially inflate prices.
In addition, India’s finance ministry said during the budget
announcement this year that it plans to retroactively tax foreign
acquisitions into India, a plan that seems aimed at Vodafone of
Britain, which could owe several billion dollars. Vodafone is fighting
the Indian government in international courts, and other foreign
companies, including telecom operators, could follow suit, deal-making
experts say. Vodafone’s chief executive attended the Wednesday meeting
but did not speak publicly.
Already, telecom operators are shutting shop in India.
Etisalat DB and S Tel, which have joint ventures with Indian companies,
announced their intention to discontinue their operations in the
country. S Tel had approximately 3.4 million users in India while
Etisalat DB had 1.7 million. Loop Telecom, a smaller player in the
market with about 6,000 users in India, also decided to close its
operations across India except in Mumbai in April this year, following
the uncertainty regarding telecom regulations.
Their exit hasn’t been a quiet one.
Upon closure of its India operations, Loop telecom sought damages from
the government along with a refund of the money it paid for licenses,
amounting to $711 million.
However, TRAI, the Indian regulatory body, does not believe that there
is need for policy that would enable telecommunications companies
forced to exit the country to receive damages. On 26 March, a draft
recommendation released by TRAI said the regulator felt there was no
need for an exit policy. Meanwhile, in April the Department of
Telecommunications sought legal opinion on the invocation of bilateral
investment treaties by foreign companies like Siestema and Telenor.
In a letter last month to Kapil Sibal, Minister of Communications and
Information Technology, the heads of leading telecom companies said
that the TRAI recommendations “will deal a fatal blow to the telecom
sector.” The letter, signed by the heads of Bharti Airtel, Uninor,
Videocon Telecommunications, IDEA Cellular and Vodafone India said,
“Such flawed and retrograde, regressive and uncertain recommendations,
if accepted, will irretrievably harm consumer interests, ring the death
knell for Indian telecommunications and also lead to prolonged disputes
and litigation.”
However, Mr. Sibal said that there would be no loss generated by the
cancelling and re-issuing of 122 telecom licenses. “I still stand by my
zero-loss comment in the 2G spectrum issue,” he said. “When there was
no policy on auction, how can there be a loss?”
Analysts say that telecom companies are unlikely to participate in an
auction held according to TRAI recommendations because entering the
bidding process would justify the inflated reserve price the government
has set. Neither older players nor new entrants will support the
auction, they predict.
“There are two groups involved here, incumbents who are bidding to get
extra spectrum and new entrants to the market,” explained Ashish Basil,
partner of telecom practice at Ernst & Young. For the incumbents, “not
participating in the auction does not mean their business shuts down,”
he said. But “their decision to bid or not to will decide the benchmark
for the future and they will not want to set such a high benchmark.”
For new entrants like Uninor, this bid is the deciding factor on
whether to stay in India or not.
Earlier this week, Telenor decided to write down its exposure in Indian
accounting, amounting to an estimated $682 million, attributed to the
uncertain business environment in the telecommunications sector in
India. The company said if the TRAI recommendations were approved by
the Department of Telecommunications, it would be almost impossible to
participate in the auction. “Telenor is working actively towards Indian
authorities to bring forward an acceptable framework for continued
operations,” it said in a statement.
At the same time, Uninor filed an application in Supreme Court seeking
its intervention against the TRAI proposals to auction 2G spectrum.
Sharad Goswami, media spokesperson for the company, said that the
recommendations are not in line with the Supreme Court orders.
He said his company was forced to sue because TRAI ignored their
reservations regarding the quantity of spectrum to be auctioned, the
rollout obligations and the spectrum reserve price.
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