Wednesday, February 27, 2008

India - additional licences

Raja to issue 120 telecom licences

Amid allegations of ad hoc and irregular spectrum allocation, the telecom ministry cleared the decks for 120 LoIs (Letter of Intent) holders to sign licences.

According to DoT sources, telecom minister A Raja has signed these files and returned them to Sanchar Bhawan despite court cases challenging the government’s decision to allocate spectrum on a first-come-first-served system based on date of payment.

Idea Cellular and Spice have filed cases against the DoT in the TDSAT. The next hearing is due on March 12.

With this, Raja is set to make history, though for all the wrong reasons, as no other country has ever issued so many licences to as many companies with so little spectrum in an environment of complete ad hocism and lack of transparency.

S Tel, Allianze Infratech and Parvsnath have also challenged the recent decisions of government in Delhi High Court regarding grant of LoIs. These cases are listed for hearing this month and the matter is presently subjudice.

In fact, in the Parvsnath matter, the court has directed that the signing of UAS licences in respect to the applications received after the applications of Parvsnath will be subject to the orders of the court. This creates serious uncertainty for companies such as Datacomm, Loop Telecom (BPL), Unitech and Shyam Telelink all of whom applied after Parsvnath filed its application on August 27, 2007.

Undeterred by court cases and multiple warnings by the industry, the telecom ministry is now planning to proceed with signing of licences by making use of the fact that the UAS licence agreements will be subject to the outcome of various court cases.

This shifts enormous risk on the shoulders of new applicants who will have licences on paper but will lack legal clarity before proceeding with either its implementation or a likely M&A. Investors engaging these new entrants will also be on tenterhooks.

The telecom sector has been in turmoil for last eight months on the manner and lack of rigor through which spectrum worth Rs 6,000 Rs 8,000 crore is being given away at a mere Rs 1,651 crore to several new entrants based on controversial 2001 pricing.

It is likely that unless DoT can allocate sufficient spectrum for each of the applicants in all circles, several existing operators will now insist on a court stay on spectrum allocation.

TDSAT has so far held off granting a stay on the matter by citing that government was neither ready with spectrum nor had it decided on criteria. With this latest move and the possibility that licences will be signed within 48 hours, the crisis looks bigger.

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