Court ruling will lead to consolidation, fresh investment (Lead)

February 2nd, 2012 - 9:47 pm ICT by IANS  

New Delhi, Feb 2 (IANS) The cancellation of 122 telecom licences by the Supreme Court Thursday would lead to clarity in the telecom policy framework, encouraging investment and accelerating growth in the sector, India Inc. and industry analysts said.

The ruling, they said, would result in consolidation and freeing up pricing power in the sector.

“We look forward to conducive government policies and actions to encourage the required investments in telecom infrastructure and services,” industry lobby Confederation of Indian Industry (CII) said in a statement.

The Federation of Indian Chambers of Commerce and Industry (FICCI) said, “With this crucial judgment, the sector will be restarting the process of receiving clarity in terms of policies and next steps.”

“In the new environment, India is expected to invite and attract large scale domestic and foreign investment afresh. This may take some time but is an improvement over an environment that mirrors uncertainty. Consumer interest should be kept uppermost,” FICCI added.

Ankita Somani, research analyst (Telecom) with Angel Broking, termed the court decision as “positive” for the sector on the whole.

“And there is bound to be consolidation as some of the players may not go in for the auction route stipulated by the apex court.”

Somani said none of the licenses held by Bharti Airtel and Reliance Communication were canceled as all licenses to them were issued before 2008.

Reliance Communications on its part said its licenses were all issued in 2001 and prior to that. Therefore, the company was not affected by the judgment.

Another analyst, preferring anonymity, said: “Consolidation is bound to happen as some of the existing players may not participate in the auctions. The existing players may now be able to revise upward their rates. They were not able to do so due to the competition.”

He said the established players like Bharti, Vodafone and others who did not get the specturum in 2008, are now better positioned as compared to the new players.

The court judgment would set right many of the policy and structural issues so that the serious players in the sector as a whole can move forward.

“The unused spectrum would now come back into the system and the scarce resource would be put to efficient use,” he added.

There are 15 telecom players in the country.

It would be interesting to note whether the government would be able to raise huge sum from spectrum auctioning now.

The Comptroller and Auditor General (CAG) had estimated the loss to the exchequer under the old sale price at Rs.1.76 trillion (Rs.1.76 lakh crore).

“It all depends on the number of bidders and the kind of money they are willing to pump in,” a Mumbai-based analyst told IANS on condition of anonymity.

According to Benoy C.S., director, ICT Practice, Frost & Sullivan, South Asia and Middle East, there will be a tariff raise in the short run.

As in the case of 3G licenses, the auction route may jack up the initial capex investment, which in turn may lead to increased cost for telecom services, he said.

“From a long term perspective, it is going to help telecom industry as a whole. It will open up the opportunities for some global telecom companies who missed the race earlier to invest in Indian telecom industry. We will see entry of some mature MNC (multi-national company) service providers which will bring in a healthy competition and better quality of service,” Benoy said.

Analysts are also of the view that the Supreme Court judgment would also have its impact on the mobile telephony tower companies and the equipment vendors.

“The new development may be positive for independent tower companies. But the issue has to be studied,” Somani added.

Meanwhile, Idea Cellular said it had been unnecessarily caught in this situation just because its licenses were granted in January 2008 which was as late as 18 months from the date of application.

“Idea Cellular had filed a petition in TDSAT inter alia seeking to isolate our application from the 2007/08 applications, and thus requesting for priority under the then DoT policy of ‘first come first serve’,” it said.

Over 6 million Idea customers will be affected, accounting for four percent of the firm’s revenue.

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