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India Telecom
New telecom minister sets a new tone
India’s new telecom minister Kapil Sibal via a press conference has indicated
a rough roadmap to address recent concerns in the Indian telecom sector. We
believe that this is a step in the right direction for a more transparent
regulatory environment but we don’t expect a resolution in a hurry. We note
that the heightened media attention on this issue in our view has added some
pressure for action. We believe Sibal's comments are more negative for the
new telcos and Reliance Communications (RCOM) than the GSM incumbents
such as Bharti Airtel and Idea Cellular. The jury is still out on 2G pricing,
which is important to determine the levy of fines, if any.
• Issue 1: Show clause notices to be sent to 85 licensees in the next few
weeks on eligibility concerns: Sibal highlighted two eligibility concerns –
registration of the change of business area to Telecom not being done in time
and an incomplete process for sufficient paid-up share capital. The licensees
would be given 60 days to revert as to why their licenses should not be
cancelled. We note that Uninor, Videocon, S Tel, Loop, and Etisalat were
among the telcos to get new licenses/spectrum in 2008. See Table 1 for more
details.
• Issue 2: Rollout obligations incomplete for 119 licensees: The new
minister found 119 licensees dating back to 2006 which had not completed
rollout obligations. While 81 if these are common with issue #1, 38 are in
addition, and likely include some incumbent players.
• Issue 3: Swan Telecom issue to be investigated; RCOM’s reply: The
CAG report alleged that Reliance Telecom had a 10.71% stake in Swan
Telecom (Etisalat DB), in violation of the criteria that no promoter/legal
person can have a 10% or more stake in more than one licensee for the same
service area. RCOM has denied this, stating that its shareholding in Swan
was 9.9% until Dec 5, ’07 and at no time did it hold more than 10% in Swan.
This issue is being referred to the Ministry of Corporate Affairs for a
thorough investigation and we expect this to remain an overhang on RCOM.
• 2G pricing, investigation, and a new policy: Calling spectrum pricing a
complex issue, Sibal stated that further work needs to be done to check if the
government has incurred a large loss. Sibal indicated an investigation into
the 2G spectrum issue saying that the Supreme Court can monitor it. He
indicated that a new policy framework could be expected in the next few
weeks while emphasizing transparency in the sector. He also stated that
international companies should have carried out more “due diligence”.
• Recent events: The sector has seen the resignation of the prior minister due
to involvement in the 2G spectrum scam, a CAG report highlighting a loss
of $13-39B to the government and TRAI’s recommendations to cancel 69
licenses for non-compliance on rollout requirements. Please see our note
from November 19 for more details.
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