India court revokes 2G licenses, orders re-bidding

Country's supreme court orders government to cancel 122 licenses issued since 2008 due to fraud but operator complains of unfair treatment and threatens to pull investments, reports state.

The Supreme Court in India on Thursday ruled that the government had erred in issuing 2G licenses on a first-come-first-served basis and ordered it to revoke all 122 license agreements issued since 2008 so as to put the licenses back up for re-bidding, according to the Wall Street Journal (WSJ).

The news agency reported on Thursday that the court requires all 2G telecom licenses alloted since January 2008 to be cancelled after an Indian advocacy group petitioned the court to look into the matter due to allegations of fraud in the allocation process. Explaining the ruling, it said the government had erred in issuing licenses on a first-come-first-served basis and should have carried out a public, transparent auction, which would have brought the state more money and stopped fraud, the report noted.

Current 2G license holders, including the local joint ventures of Norway's Telenor and the United Arab Emirates' Etisalat, could continue operations for four months before the agreements are voided, it added.

The government must then put these licenses back up for re-bidding, the report noted, although it wasn't immediately clear how the auction would be conducted and what would happen to existing subscribers if current license holders decide to pull out of India.

Shock at "unfair" treatment
Commenting on the ruling, Uninor--Telenor's joint venture with local real estate company Unitech Group--said in a statement that it was "unfairly treated" as it had followed government processes. "We are shocked that Uninor is being penalized for faults that the court has found in the government process," it stated in the report.

Jon Fredrik Baksaas, president of Telenor, also told BBC in a separate report Thursday that the ruling was "extraordinary".

"There's frustration we are not seeing a regulatory framework with some nuts and bolts so it justifies the numerous investments that we and others have made," he said. "If the worst comes to worst, it will be the end of Telenor's business in India."

Ashish Basil, partner of telecom practice at Ernst & Young India, agreed, telling WSJ that "there's no consistency in terms of regulation" in India. In such an environment, foreign investors would now hesitate before investing in India, particularly sectors heavily regulated by the government, he warned.

On Wednesday, the country's telecom regulator further hindered the development of the industry when it mandated that only 2G airwaves can be shared among operators. Operators cannot share 3G capabilities, and those that had offered 3G roaming and data services need to stop, a report stated.