2012: A challenging year for the telecom industry

The government is banking on the second round of spectrum auction and customer-centric moves such as free national roaming to rebuild the telecom sector, impacted by controversies and court judgements that have shaken investor confidence.

The tremors of official auditor CAG's last year estimation of Rs 1.76 lakh crore presumptive revenue loss to the government in the allocation of 2G spectrum continued to be felt in 2012 with Supreme Court cancelling as many as 122 telecom licences in February.

What followed was foreign investors either shutting shop or threatening to seek damages for the investments they lost. Caught in the melee were lakhs of their subscribers who had benefited from telecom user charges coming down with increased competition.

To compound the woes, the auction for 2G spectrum – freed from licence cancellations - flopped as bidders shunned high reserve price the government had set based on the methodology used by CAG in determining the humongous loss.

The radiowaves not picked up at the auction are now being planned for sale in the second round this fiscal after the lowering of the base price with the hope of attracting bidders.

Minister of State for Communications and IT Milind Deora told PTI that government has tried to give a message of resetting and reviewing economic agenda for the country.

"At telecom sector level, I believe that people will have certain concern, there may some tinkering here and there... but broadly there is consistency, continuity, clarity in what the policy framework going forward for the licensee (telecom operators) which is largest investor in the sector," he said.

The Minister said the new amendments to the policy may hit some and suit some, but decisions that government is now taking are long-term oriented and have clarity.

"Outlook for the sector, not just 2013 but next foreseeable future...may be difficult, challenging. I am not denying it...but (now has) clarity. I think this much clarity has not existed for long time in the sector," Deora said.

The year 2012 began in the lap of 2G scam with Supreme Court cancelling 122 2G licences and continues to reverberate and has taken away focus of foreign investors from it.

Post this judgement, UAE based Etisalat, Bahrain telecom firm Batelco and domestic company Loop Telecom announced to shut down their business in India. Russia's Sistema has warned to seek "billions of dollars" in damages from India if licence cancellation issue of its Indian telecom venture Sistema Shyam is not resolved in time.

Sistema and Russian Ambassador to India, Alexander Kadakin, have said that failure to resolve the SSTL case could threaten India's broader diplomatic interests with Russia.

Industry body Association of Unified Telecom Service Providers of India (AUSPI) whose members SSTL and Tata Teleservices were hit by the apex court judgement said: "This single act threw the industry into total disarray, the impact of which it is still trying to recover from."

The recent spectrum auction, ended on November 14, saw muted response from companies, indicating the damp mood of investors towards India's telecom sector.

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The auction attracted combined bids worth Rs 9,407.64 crore only from five players - Vodafone, Idea Cellular, Airtel, Telenor proomoted Telewings and Videocon.

The poor response to the auction was attributed to around 7 times higher spectrum price that government fixed compared to what companies paid in 2008.

This achieved spectrum price was around half of the value of a 3G spectrum slot, Rs 16,750.58 crore, that was put for auction in 2010. It had formed the basis of astronomical loss figure of Rs 1.76 lakh crore projected by Comptroller and Auditor General of India for spectrum allocation in 2008.

Telecom Minister Kapil Sibal in an interview blamed media for sensationalising loss figure projected by CAG and "judgement of a court of cancellation of licences which in turn...destroyed sentiment of the market which in turn lead to the situation that we are in today".

Terming the year 2012 as most challenging year that the telecom industry in India has faced since its inception, GSM industry body COAI's Director General Rajan S Mathews said the judgement by apex court "heightened the prevailing regulatory uncertainty in the sector" and was "big blows to the financial health, sustainability of the industry".

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Global telecom industry body GSM Association's Director General Anne Bouverot said result of recent 2G spectrum auction was a snapshot of investors mood towards India telecom industry and in current global economic slowdown scenario.

"You do see foreign acquisitions and investments in mobile. Its just changing and clearly its not focussed on India now when it was very much focussed on India in the past," Bouverot said.

According to the Department of Industrial Policy and Promotion, foreign investment inflows in the sector plunged to $43 million in the April-September period of the current fiscal compared to $ 1.9 billion it attracted in April-September 2011.

In the ongoing financial year, the government is learnt to be gearing up for another auction with plan garner at least around Rs 39,895 crore from the airwaves to meet budgeted target of Rs 40,000 crore.

The government is of the view that National Telecom Policy 2012 will provide stable regime for in the sector for at least next decade.

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According to sources, Department of Telecom is working on one-year agenda to achieve important milestones set-in NTP 2012.

This includes amendments to the Indian Telegraph Act to enable customers approach consumer courts for seeking resolution of their complaints, nationwide Mobile Number Portability and host of other things.

"I think lot of attention has just gone into policy framework for investors but now that is settled. May be its time in 2013 to focus on little nuts and bolts to make sector more competitive and attractive for investors but at the same time more empowering for customers," Deora said.

The new telecom policies promise telecom subscribers free roaming and as per Telecom Minister Kapil Sibal words it will be reality in 2013.

Sibal has said that industry should move to business model to generate revenue from data services and not charge for voice calls in years to come.

"The industry must move in that direction (changing business model to earn from data services) so that in years to come, talking to each other should not be taxed. There should be no charge for talking to each other," he said at an event.

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