Cancellation of 2G Licences:What is its Impact?

The Supreme Court  has cancelled 122 telecom licenses granted to telecom companies after 2008 under Telecom Minister A. Raja’s tenure. These licenses were issued during an irregular sale of spectrum using ‘First-Come-First-Served’ basis. As directed by Supreme Court, the verdict will be implemented after four months from today. During this time the government will have to decide new norms to re-issue licenses to interested players. Due to these cancellations, a total of 55 Mhz of 2G spectrum (4.4 Mhz per circle) has been freed.

These 122 cancelled licenses  include, Essar Loop’ 21 Licenses, Uninor’ 22, Videocon’ 21,Idea ’ 9, Swan Telecom’ 13, Spice Telecom’ 4, S-Tel’ 6 and Tata Tele Services ’ 3 Licenses. Besides, DB Realty  and Etisalat’ licenses were also cancelled in this verdict. The decision will have a major impact on the telecom sector especially on service providers. Let’s see how it affects the different parties involved.

Sector Impact: This verdict will augment the on-going chaos in the telecom market. Foreign players that entered into joint ventures to get a bite of one of the biggest telecom market in world are now feeling the pinch. This will temporarily impact the FDI flow in the sector as these foreign players may not participate in fresh auctions. But in the longer term, this verdict, will help the sector attract clean money. Also due to this verdict, the sector will see some relief from competition and may see a rise in average revenue per user.

Impact on Operators: Major casualties of this verdict will be the new entrants like Swan, Sistema, Essar Loop, Uninor, and Videocon  as they have lost their license in most of the circles. These companies have also incurred huge expenditures (mostly debt financed) to roll out services and will be impacted adversely on debt front as well.

Bharti Airtel , Vodafone and RCom  will be the likely gainers due to this verdict, as their licenses have not been cancelled in this verdict. Besides, these companies, will also gain due to number portability exercise of the customers of the indicted companies. Additionally, the lost licenses will help the sector partially offset the competitive pressure, helping the big players. Companies with strong balance sheet like Bharti Airtel will be in a better position to capitalize on the situation and regain their lost market share.

Impact on customers: Customers are not expected to be impacted a great deal immediately, largely due to the MNP (Mobile Number Portability). Customers can change their operators and can retain their existing numbers with them. However, as competition is likely to subside due to the cancellation of licenses, we may see a moderate hike in headline tariffs.

Besides companies, sector and customers, Govt of India will be hoping to use this situation to fund its fiscal deficit. GOI is expected to earn a good amount due to the auctioning of the cancelled licenses.