Telcos mull legal option if govt cancels licences

The telecom industry could see a fresh round of litigation in case the government implements the recommendation of the Telecom Regulatory Authority of India (Trai) to cancel 69 2G telecom licences granted in 2007-2008.

The Department of Telecommunications (DoT), however, is unlikely to act as per the Trai recommendation, and might instead consider imposing financial penalties on these licensees for non-compliance of rollout obligations.

Even as the Trai recommendation, which was given suo motu (without the DoT referring the matter to the regulator), is yet to be placed in the public domain, the regulator has written to DoT secretary R Chandrasekhar pointing out that these licences should be cancelled due to non-compliance of rollout obligations.

Trai gives out recommendations to the government when asked for, after a process of consultation with the stakeholders, but it also has the power to issue suo motu recommendations in exceptional cases.

While communications minister Kapil Sibal told reporters on Friday that the Trai recommendation would be considered by his ministry, sources said telecom operators may be forced to take legal recourse if the government was to cancel the licences.

“The recommendation to cancel licences is a knee-jerk reaction by Trai,” a source in the DoT said, explaining that consumer interest may be hit if such a step is taken as many of these licensees have operations now with thousands of subscribers.

While DoT would give due consideration to the Trai recommendation, it is not bound to accept it, he added. “If there’s a need to take legal action, the first stop for the telcos would be TDSAT (Telecom Dispute Settlement and Appellate Tribunal),” another source said.

Those identified by the regulator for scrapping of licences across circles include Etisalat DB, Uninor, Sistema-Shyam, Videocon, Loop Telecom and Aircel.

Malvika Gupta and James R Sullivan, analysts with JP Morgan, in a note on Friday said the cancellation of licences, if implemented, would bring at least 150 MHz of 2G spectrum to the market, which could be positive for the sector in the longer term.   

“We don’t, however, view this as meaningful sector consolidation as these telcos account for less than 5% of the subscriber base and a smaller share of revenue,” they said.

Sachin Salgaonkar, Piyush Mubayi and Paras Mehta, analysts with Goldman Sachs, in another note on Friday stressed there’s “limited clarity” on how licences would be cancelled.

They pointed out that withdrawal of the licences could be difficult, “as it raises the question of what happens to acquired subscribers”.

It has argued that a more realistic outcome would be fines, giving operators more time to meet rollout obligations. They added that “several operators believe they have met obligations and may appeal the recommendations.”

The Comptroller and Auditor General of India, in a report on the 2G spectrum allocation, has pegged the loss to the national exchequer at Rs1.76 lakh crore over irregularities in the 2G spectrum allocation in 2007-08.

A Raja had to resign as the communications minister over the issue of alleged 2G spectrum scam last Sunday.