2G Spectrum Scam – What is the Roadmap After Landmark Supreme Court Judgement ?

The Honorable Supreme Court of India has passed ruling to cancel 122 licenses for 11 telcos (licenses issued from 2008 onwards). Operators are allowed to operate for 4 months with the existing licenses. Overall, this is slightly positive for the industry as canceled licenses contribute minuscule revenue but it would result in lesser number of operators in the industry and start the consolidation process.

So what is the Roadmap Ahead for Indian Telecom Sector now ?
TRAI to start working on formulating auction rules and exit policy. The 4 month time line is aggressive for the auction rules to be formulated / approved by DoT and to be auctioned. In the mean time we see the risk that some of the subs on networks of the affected operators may churn using the Mobile Number Portability, given no visibility on whether the operator will continue to operate after the auction.

We expect the cancelled licenses will be offered in an auction and the reserve price for this auction will be Rs1,680 crore (i.e., the price originally paid for 2G, almost 1/10th the price paid for 3G). An auction would likely make available 5-7 lots of 4.4MHz paired 2G startup spectrum across various circles.

Will their be Overbidding ?
Considering entry of Reliance Industries, AT&T along with existing players Uninor, MTS – Shyam Sistema and Idea Cellular, we do expect Aggressive Bidding by Serious Players such as Reliance and AT&T. Bharti / Vodafone (whose licenses are not cancelled) can also bid in the auction (as they own unified license), we do not expect them to be aggressive as the price determined in this auction may be used for calculating the excess spectrum fee lying with these incumbent operators.

Will their be Refund of Entry Fees for Losers ?
It remains unclear if the one time entry fee paid by these license holders will be forfeited by the government or if it can be adjusted with any potential amount which operators pay to get licensed again (we believe through an auction route). If the entry free amount gets forfeited, then we believe these affected operators may exit the market as they would have to make incrementally higher investments to continue to operate and only committed operators may decide to stay.

Stay tuned until we get clarity from the TRAI.