India: Case Study on the Supreme Court Ruling on the 2G Spectrum Scam

Posted: 30 Apr 2012  

Guru Acharya

Independent

Date Written: February 27, 2012

Abstract

In 2008, the Central Government of India granted 122 telecom licenses to various companies in response to 575 applications for licenses. In a report in 2010-11, the Comptroller and Auditor General (CAG) of India concluded that the allocation of these 122 licenses was characterised by policy gaps and irregularities in procedure. The Government was criticised for cherry-picking the telecom regulators recommendations; for ignoring market based mechanisms like auctions; and for administratively allocating licenses at prices discovered in 2001 on the pretext of providing a level playing field with incumbent operators. The estimated loss by the CAG according to three different estimates ranged from Rs 53523 to 139652 crores. Media coverage of the report and license allocation, hyped as the “2G Scam,” was followed by public outrage and protests. On the 2nd of February 2012, the Supreme Court of India, in response to a Public Interest Litigation (PIL), cancelled all 122 telecom licenses granted in 2008 and directed that the spectrum linked with these licenses be auctioned.

The verdict took the telecom industry by surprise and left the Government running for cover. The unaffected incumbent operators praised the verdict for giving a blank slate to the Government - an opportunity to chalk out a fresh concrete policy for efficient management of spectrum and maximization of government revenues. The affected licensees, however, complained that the Supreme Court left a question mark with respect to the future of operators who had already rolled out their networks. Many investors such as the Telenor Group (of Uninor) had already invested over Rs 6,100 crores in equity and over Rs 8,000 crores in corporate guarantees as a foreign investor that trusted a telecom licence stamped by the Government of India. The company had appealed to the government for a solution so that its customers are not affected by the verdict. ''We also expect the authorities to ensure that our 36 million customers, 17500 workforce and 22000 partners are not unjustly affected,'' said Uninor . A few other foreign investors even threatened to invoke foreign investment treaties to indemnify their losses. Some others have decided to write off the losses and exit the market completely.

Industry experts fear that the reduced competition by the mass cancellation of licenses is expected to lead to an increase in tariffs in the near future. Further, experts also fear that a few telecom infrastructure companies are expected to become unsustainable as their primary customers were the cancelled licensees.

The Supreme Court ruling comes in a scenario wherein telecommunications in India is torn between the New Telecom Policy of 1999 (NTP 1999) and the Draft New Telecom Policy of 2011 (DNTP 2011), which is yet to be finalised and notified in February 2012. In these times of uncertainty, all stakeholders look towards the Central Government for guidance with very high expectations.

Keywords: 2G scam, supreme court 2G judgment, license cancellation, India telecom

Suggested Citation

Acharya, Guru, India: Case Study on the Supreme Court Ruling on the 2G Spectrum Scam (February 27, 2012). Available at SSRN: https://ssrn.com/abstract=2048719 or http://dx.doi.org/10.2139/ssrn.2048719

Guru Acharya (Contact Author)

Independent ( email )

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