2G verdict: Future tense for users, telcos, govt, India image

 The Supreme Court’s judgment cancelling all 121 licences given by ex-telecom minister A Raja holds major implications for the rule of law, government, industry, banks, India’s global reputation and the consumer.

Consumers: Mobile number portability will help. Subscribers will have to move to other operators in their circles over the next four months. The total subscriber base of these firms could be close to 90 million or roughly 10% of the total subscriber base. However, a reduction in competition could trigger a further increase in tariffs, which went up 30% last year because of the failure of the new entrants to roll out services.

Government: Although the government has welcomed the judgment, it has to rectify a situation gone horribly wrong. It faces the task of scrapping 121 licences spread across hundreds of cities with physical infrastructure, switches, towers, base stations, customer care centres, and thousands of employees. Within four months, all of this must cease to exist, as per the SC order.

The government has to take back spectrum from these companies. The Telecom Regulatory Authority of India (Trai) is simultaneously expected to produce detailed guidelines on spectrum auction within two months – very difficult, given Trai’s prior performance record. Not just existing companies, but even those whose licences are cancelled have to be allowed back into the bidding ring.

Global companies have to be given time to enter, as they are often best positioned to offer high bids for spectrum. Meanwhile, companies whose licences have been cancelled could sue the government for damages. Apart from cases where companies have paid bribes (if proved), some companies would be seen as victims rather than villains. In short, this mess could take months to fix and damage India’s reputation as an investment destination.

Industry: Ironically, those who will suffer the least are the biggest defaulters, or those who spent the least on infrastructure/rollouts. Firms like Uninor, Idea and MTS are the worst affected as they are the only ones who have spent money on infrastructure on the ground. These three argue that they have been penalized for the government’s illegal acts. Government will get nearly 320 MHz of GSM spectrum back, subject to whether or not affected companies go in for damages or judicial review of this judgment. In the face of this and the time required for cleaning up the sector, it’ll be difficult to hold auctions in a hurry. For now, the sector is entangled in a web of uncertainty.

Rule of law: The SC judgment has confirmed that justice may be delayed but not denied in India. It further reinforces India’s intolerance of the business-politics-bureaucrat nexus leading to crony capitalism, upholding that regardless of status or corporate power, all stand equal before the law.

India’s global reputation: The SC judgment is a big blow to India’s reputation as a foreign investment destination. Two back-to-back SC judgments – one favoring a corporate (Vodafone) and this one hitting the corporate sector (121 licenses cancelled) – reflect low governance. In both cases, the government has been shown up as acting arbitrarily and outside the law.

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