2G scam rattles telecom nirvana4 min read . Updated: 01 Mar 2012, 07:11 PM IST
2G scam rattles telecom nirvana
Barcelona: The scandal convulsing the Indian telecom market threatens to deter foreign companies from investing there and could call into question the business case for expanding into emerging markets in general.
Once seen as a potential gold mine for its rapid growth and huge population, the Indian market has proven especially nerve-wracking for Western telecom operators because of unexpected regulatory changes and ferocious competition.
Now the latest row has taken on an extra diplomatic edge after the Supreme Court ruled eight companies, including six with foreign stakeholders, would lose some or all of their telecom permits, following a scandal-tinged 2008 sale.
“The investor climate in India will be changed forever, for everyone if this happens," Jon Fredrik Baksaas, the chief executive of Telenor, told Reuters, as he warned that his group could still quit India if things did not improve.
The Norwegian government, which owns 54% of Telenor, has intervened with Indian authorities to argue Telenor’s case after its joint venture Uninor looked set to be stripped of its licences to operate.
Telenor had been the most aggressive of the new entrants and had spent $2 billion in recent years to build up a base of 36 million subscribers as of December.
That would include limiting the spectrum to players that had lost licences, and not allowing market leaders such as Bharti Airtel and Vodafone to sweep in and scoop up extra spectrum.
For its part, Russian group Sistema, which is also at risk of losing licences, argued that India risked violating a bilateral investment treaty it had with Russia and demanded that the row be settled in six months or else it may have to approach an international arbitration tribunal.
Two other foreign-owned operators have already thrown in the towel. Bahrain Telecommunications said earlier this month that it was exiting, while the United Arab Emirates-based Etisalat has said it will shut down its Indian joint venture after writing off $827 million.
At the Mobile World Congress in Barcelona, major operators from Bharti to Vodafone lined up to warn that the current climate was unsustainable as the Indian telecom minister Kapil Sibal huddled in closed door meetings to hear their concerns.
India is the world’s second-largest cellular market by subscribers, with 894 million at the end of December, however fierce competition among 15 operators means call rates are among the lowest while strict regulation has so far discouraged mergers or spectrum sharing.
The tough conditions mean the ruling could benefit the biggest players in the crowded industry, but even they complain that there is still far too much uncertainty over future regulation and how the industry will unfold.
Vittorio Colao, chief executive of the world’s largest mobile operator Vodafone, dismissed as a “half baked idea" the recent proposal to relax caps on market share intended to lead the way for consolidation, when companies did not know if they could acquire more spectrum.
“You cannot talk about M&A unless you clarify the spectrum," he said. “If it’s not clear how much spectrum I can retain and how much I will pay for the spectrum who is going to make a bid?"
Even Vodafone’s road in the country has been bumpy: it recently won a years-long battle with the country’s tax authorities that could have cost it heavily. That decision was seen as boosting the climate for foreign investment in India, but much of that goodwill is now on the line again.
Bharti Airtel chairman Sunil Mittal told the conference the country had enormous potential for telecom operators but said the market had been made harder by the huge fees needed to buy spectrum and licences over the years.
“We have made structural mistakes in India," Mittal said. “Yes, we have a large population but my average revenue per user is about one-fifteenth of those in Europe, and that is the challenge."
Franco Bernabe, head of the GSMA telecom operators trade association and Telecom Italia CEO, also warned that India risked alienating the very companies it needed to modernize the infrastructure of its rapidly growing nation of 1.2 billion.
“India is a very large country it needs a lot of investment in networks, but in order to incentivize companies to invest you have to have a stable, fair and transparent environment," said Bernabe in an interview.
“Of course we don’t want to interfere in India’s internal affairs - we know these issues are very complicated - but the process of giving out mobile licences should be fair and transparent to everyone."
Colin Brereton, the global communications leader at PWC, said the Indian government risked hurting not only its own image, but also those of all emerging markets.
He said companies would worry that if mature Western operators with strong financial backing could not make India work, with its growing middle class and decent infrastructure, then entering markets in Africa would appear even harder.
“India is a hugely important indicator of whether or not this is going to work," he told Reuters. “To write out a cheque the size that the telcos were writing is a risky business."
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