India’s Supreme Court has cancelled 122 2G licences that were awarded in 2008. While this move could be seen as a good precedent in the fight against corrupt practices, it may also lead to a lack of confidence among domestic and foreign investors. We asked Kunal Bajaj, Director of Analysys Mason's India office, what the impact of this decision would be on the India telecoms industry.
Q: Kunal, who will win and lose from this decision?
KB: Incumbent operators such as airtel India and Vodafone India are likely to benefit from the migration of subscribers from the operators that have had their licences revoked.
However, new entrants such as Uninor and MTS (SSTL India), which have had their licences cancelled, are in an unstable position because they had invested significantly in deploying the required infrastructure. While these operators will have the option of rebidding for the spectrum when it is re-auctioned, they will have to pay a significantly higher price than in 2008.
Q: How else will this decision have an impact?
KB: The Supreme Court’s decision may have a negative impact on the confidence of both domestic and foreign investors in the short to medium term. The ruling sets the precedent that government decisions or grants are no longer final and ‘set in stone’, particularly when government policies are subverted to benefit a few companies, and therefore an extra level of risk will continue to apply in each investment. However, in the long term, this decision might have a positive impact on foreign domestic investments (FDI), by making it clear to investors that they are partnering with companies that have acquired government licences in a transparent way.
Indian banks have continuously increased their exposure to the telecoms sector in the past few years. Institutions such as the State Bank of India and Punjab National Bank, which were the main lenders to the companies with revoked 2G licences, have an exposure of around INR200 billion (USD4 billion). The decision could lead to a decline in Indian banks’ desire to fund Indian operators, and could have long-term repercussions at a time when the industry needs continuous funding to support ongoing 3G and forthcoming 4G network deployments.
Foreign investors might lose their confidence in the Indian telecoms market and withdraw their investments and support. The loss of foreign partners could force some operators to leave the country.
A number of other sectors that require foreign investment – such as aviation, highways, power/energy, ports, retail and logistics – will also suffer if investors lose confidence.
Q: And how will customers be affected?
KB: The decision will have a significant impact on end users; around 90 million subscribers of operators that have had their licences withdrawn will have to either migrate to other operators or wait for their operators to re-acquire the 2G licences.
Some operators may be forced to leave the Indian telecoms market, leading to a decline in competition and increased voice tariffs. These operators had launched innovative plans (such as dynamic pricing and unlimited calls for a fixed monthly tariff), which was one of the main factors in driving down voice tariffs. Furthermore, if operators rebuy licences at high prices, they could end up passing on this cost to customers by increasing voice tariffs.
Q: What next for the telecoms industry in India?
KB: The future of the telecoms industry in India will depend on a clear and transparent policy framework. Regulatory initiatives to address the cancellation of the 2G licences and the implementation of the National Telecom Policy 2012 will be vital.
The Indian government should also lay down a long-term roadmap to address all existing issues (such as spectrum management and pricing), thus providing a much-needed impetus to the industry.
To find out more about Analysys Mason's research in India, please follow these links.
India Wireless research programme
India Value-Added Services research programme
The Indian mobile market: forecasts and analysis 2011–2020