Indian hope trick

I have some sympathy for Telenor’s plight in India. After the decision of the country’s supreme court to cancel the 122 2G licences that were illegally awarded in 2008, the Norwegian telco, along with some other foreign players, has been left high and dry.

Of course, some might say it serves them right. Overlooking the obvious risks, foreign firms rushed into joint venture agreements with local companies that had acquired their 2G licences through the shady practice of first-come-first-served. Huge sums of money exchanged hands. The thinking seems to have been that, with growth prospects so high in India’s mobile market, the gamble was well worth it.

Yet it unravelled pretty quickly that the 2G allocation was rigged to the advantage of favoured companies. Stoking public anger was the painful realisation that government coffers had been denied billions of dollars by not allocating the 2G licences in an open auction. Now the authorities want to look serious about weeding out corruption.

When the highest court in the land cancelled the 2G licences, the India’s telecoms minister (who oversaw the  spectrum allocation) had been in jail for a year awaiting trial.  Other government government officials are being investigated. Fines have even been slapped on Indian companies that rushed into 2G joint ventures with foreign firms. Despite the hard clampdown, however, nobody comes out of this with any credit.

First, the supreme court’s action is unlikely to encourage more foreign investment. Rather than sending a signal that India is a safer place to do business, it underlines how volatile the country’s regulatory environment can be. Foreign companies are also guilty of being naive at best, playing fast and loose with shareholders’ money. Telenor spent US$1.1bn for its 67% stake in Unitech, and another US$1bn on network expansion. Is that money now up in smoke?

If what the Telenor CEO says is true, that it hasn’t done anything wrong, then a case for compensation can be made. Yet there is a bigger picture. Excited by the prospect of high Indian growth, foreign telcos tended in the past to jump into the market and ask questions later. That excitement now looks misplaced. Unless operators have extremely streamlined operations, they will struggle to make a profit in a place that has one of the lowest voice call prices in the world. Look at Uninor, the mobile business run by Unitech and Telenor. Despite having a large-scale operation by western European standards (over 24  million subscribers) it made an operating loss in excess of US$600m during the first three quarters of 2011. It is not only the supreme court’s actions that have caught out Telenor.



Tagged , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *


You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>