2G and beyond...

The cancellation of the 2G licenses by the Supreme Court, throws up some interesting thoughts. It is reasonable to assume that these licenses will come up for auction and anyone wanting to get in, would have to fight off the present players who enjoyed these licenses thus far. The Courts have given a breather of four months by which time the Telecom Regulatory Authority (TRAI) would have hopefully finalised the modus operandi for an auction. Of course, there also exists the possibility that one of the affected companies could seek a review in which case the time frame gets extended. The judgement does not impose any thing stringent on the players in the drama. Some fines have been imposed on a couple of players, but that is only so much money. Other players have not been touched in any way except having their licenses revoked and have not been barred from getting the same license again through some way or the other. The interesting thing would be to see whether the partnerships survive, in the case of those companies where the foreigner has subsequently come in by buying shares from the local players at a huge price. Surely, the foreign players would like to protect what money they have pumped in and would therefore be at the mercy of the Indian partner. It is highly unlikely that the foreign partners were unaware of what went in to getting the licenses. And now, they suddenly have to cough up more money (if there is an auction, it will be the foreign partner who has to cough up money) if they want to stay in business in India. Of course they will make noises about political uncertainties in India simply to put pressure. They know and we know that they all want to be in India and China. And of the two, India is much more amenable and open. So, they may have to keep the present partners and start afresh. Of course, the guys who made money by selling the stake to the foreign telcos have already laughed their way to the bank and neither the Courts nor the government would be motivated to catch them. It would be interesting to watch the auctions as they come up. Existing players like Vodafone / Airtel can simply create nuisance bids for the 122 circles to push the costs higher for the wannabe licensees. So, for four months (or for a further extended period if someone legally challenges the Court decision) there is going to be much mudslinging and speculation about whats and ifs. As far as the consumers are concerned, it should make no difference. Strangely, I have not seen any TRAI order prohibiting the companies from seeking new customers, unless the interpretation is that since their license is suspended and they have merely been given a license to “Carry On Business”, it follows that they cannot enrol new clients. Media will also make noise (perhaps motivated) that this decision will lead to increase in telecom charges. Do not believe it. These 122 licenses do not constitute more than five to six percent of the market. Yes, charges may go up, but that would have happened irrespective of this event. India has perhaps the cheapest calling rates in the world and a twenty percent hike would still keep it there. The industry players competed to grab market shares and brought down rates to unremunerative levels. This had to get corrected and we have seen one modest correction so far. As regards the noise about this creating uncertainty about FDI, it is all bunkum. This decision in no way should deter any genuine FDI. In this case, no foreign partner can deny ignorance about the antecedents or connexions of the Indian players, most of them who had nothing to do with the telco industry except being customers. Media space and time will be bought for propagating the FDI angle, but I firmly believe that this decision has zero impact on FDI. If anything, it creates a better climate for those who want to come in with strict compliance to the letter of the law. It is also a warning for the foreigners to choose their partners with care. I also suspect that noises being made by some players of their losing interest in the system, is just so much of hot air. All of them are under pressure to perform at home and the Indian market is a Hobson’s choice. Since everyone and his neighbour is in India, there is a problem a CEO will face, if India does well and his company is not there. India is not short of excitement. First we had Vodafone. Now this. What next?