* Underpriced sales cost government billions, state auditor
* Verdict could shake up market; big carriers to benefit
* Norway's Telenor says may quit
* Fewer than 5 pct of subscribers could be affected
* Shares in Bharti surge; Telenor shares fall
By Devidutta Tripathy
NEW DELHI, Feb 2 India's Supreme Court
ordered on Thursday telecoms licences issued under a
scandal-tainted 2008 sale be revoked, striking a decisive blow
against corruption that plagues the country and roiling the
world's second biggest cellular market.
The ruling applies to 122 licences held by eight operators
including Norway's state-backed Telenor which said it
may quit India rather than wait for new market rules to be
Fewer than 5 percent of users will, however, be affected by
the cancellation of licenses in a fiercely competitive market
crowded with more than a dozen players.
Market leaders such as Bharti Airtel and
British-based Vodafone, which last month scored a big
win when the Supreme Court ruled it was not liable for $2.2
billion in tax, are poised to benefit from the ruling.
The licences affected include those held by Unitech
Wireless, a joint venture of Telenor and Indian real estate firm
Unitech, which has been the most aggressive of the
newer operators and had more than 36 million subscribers in the
country as of December.
"We have been unfairly treated as we simply followed the
government process we were asked to," the Telenor joint venture,
which operates as Uninor, said in a statement.
Asked whether Telenor should heed calls by several company
investors and analysts to quit the Indian market now and cut its
losses, chief executive Jon Fredrik Baksaas said: "That is one
alternative that is on the table."
"We met every inch of that regulation of that licence. We
have brought competition to the Indian market ... just to see a
ruling that has significant retroactive consequences. It is an
action that we have never seen in any country before," Baksaas
said in an interview.
Telenor shares fell 3.67 percent in Oslo.
Affected licence holders can operate for four months, during
which regulators will come up with new market rules, the court
Freed-up spectrum will be auctioned, which could bring a
multi-billion dollar windfall to a deficit-strapped government.
The ruling is an embarrassment for Prime Minister Manmohan
Singh's government, which oversaw the sale of the licences at
below-market prices, costing the exchequer as much as $36
billion in lost revenues and leading to political gridlock.
The telecoms scandal is the biggest of several that have
emerged during Singh's second term and triggered street protests
"It is a historic judgment. It is trying to break a corrupt
nexus between business and politics," said political analyst
Paranjoy Guha Thakurta, who was one of petitioners in the case.
Two ministers, including former telecoms minister Andimuthu
Raja who presided over the 2008 grant process, have resigned.
Raja is in jail awaiting trial.
While the ruling may revive investor worries about the
uncertainty of doing business in Asia's third-biggest economy,
it could also build confidence in the role of the judiciary and
broader efforts to crack down on corruption.
"This is one step closer to transparency in policy-making,"
said Kamlesh Bhatia, research director at Gartner in Mumbai.
BIG PLAYERS BENEFIT
India is the world's second-largest cellular market by
subscribers, with 894 million at the end of December, although
fierce competition means call rates are among the lowest.
Investors and operators have long called for consolidation
in the crowded industry, and Thursday's ruling stands to benefit
the country's biggest operators.
"This verdict is good news for established incumbent
operators and in the short term, we are likely to see some
increase in tariffs," said Benoy C.S., a director at consulting
firm Frost & Sullivan.
Shares in Bharti, the world's fifth-largest carrier by
subscribers, ended 6.8 percent higher while Idea gained 3
percent, reversing earlier losses. Unitech fell 7 percent.
Carriers whose licences were ordered revoked include those
of the local joint ventures of Abu Dhabi's Etisalat
and Russia's Sistema, as well as Telenor.
"For foreign investors, it is very bad news. What mistake
did they do? They partnered with Indian companies, invested lots
of money and followed the process of that time," said Rishi
Sahai, director at consultancy Cogence Advisors.
Affected companies are expected to fight the verdict.
Sistema's India unit said it "reserves the right to protect
its interests by using all available judicial remedies".
India's big operators crave more bandwidth to accommodate
surging usage in the country of 1.2 billion, so if the spectrum
is auctioned it could command a premium.
The state auditor has said the spectrum bundled with the 122
licences would be worth $22.7 billion at the price paid in the
3G auction in 2010, although 2G spectrum is likely to command a
"Whether this auction will be opened for all operators or
will be open only for the people whose licences are being
cancelled -- that will determine the demand-supply equation,"
said Ashish Basil, a partner in Ernst & Young's telecom group.
India's image as an investment destination was dented over
the past year as the economy slowed, government reforms stalled
and the telecoms scandals along with high profile graft cases
heightened concerns about government policies.
"This is a collective failure of the government of India,"
Subramanian Swamy, an opposition politician and also a
petitioner in the case, said following the ruling.
In declaring the licences "illegal and quashed," the court
said in its ruling that the process of awarding them "was wholly
arbitrary, capricious and contrary to public interest apart from
being violative of the doctrine of equality".
Police have charged six companies and 19 people, among them
a billionaire owner of the Essar Group; top executives of
Telenor's and Etisalat's India ventures and three from
billionaire Anil Ambani's Reliance Group.
Executives arrested in the telecoms case have been released
on bail. Telenor and Etisalat say the case should not involve
them because the licences were issued before they bought into
the Indian market.
Other owners of licences ordered cancelled include Loop
Telecom Pvt Ltd; Videocon Telecommunications, part of India's
Videocon group ; and S-Tel, part-owned by Batelco
. Thirteen licences held by Idea, of which it is using
seven, and three by Tata Teleservices are also affected.