Adding Insult to Injury After S&P's negative outlook, two big global businesses are now rethinking their India plans due to a difficult investment climate & slow policy-making
Norway telco says it'll be impossible to carry on business if Trai proposals are accepted
Norway's Telenor has warned it will exit India if the government accepts the telecom regulator's proposals to auction airwaves at 13 times the price used in 2008, highlighting the uncertainty shrouding a sector till recently seen as a poster child for liberalisation.
The head of the company's Asia unit said it would be "impossible" to continue operations in the country of more than a billion people, in which it has invested over $3 billion since buying a majority stake in the telecom business of Unitech, a Delhi-based real estate company, in 2008.
"If these recommendations become policy, we will be forced to exit India. It will be impossible for us to continue operations here," Telenor Executive Vice-President & Asia head Sigve Brekke said in an interview. "This is not a threat, it is a reality," he said.
Brekke's comments come just a day before the Telecom Commission, the highest decision-making body in the sector, meets to decide on the recommendations put forward by the Telecom Regulatory Authority of India. But two analysts said quitting India would impact Telenor's growth potential as the Scandinavian telecom major has been depending on Asian and emerging markets for growth, with business in Europe, its main territory, declining.
"The India exit will mark a monetary loss, but will also mean a threeyear setback to Telenor on growth in the next two years," said one. They asked not to be named.
Telenor had forecast a breakeven for Uninor, its Indian unit, in 2013. Trai Proposals Not in Line with SC's Orders: Telenor's Brekke
Telenor's India operations were among the worst affected by the Supreme Court's February 2 order quashing licences awarded in the controversial 2008 sale by former telecom minister A Raja. The court asked the government to issue new permits through an auction.
Trai last week recommended that the government auction 5 MHz of airwaves in the 1800 MHz band in which Telenor operates, a quantum of airwaves sufficient for only one company to operate, though nine companies have lost licences after the court decision.
The regulator also said mobile phone companies will have to pay a minimum . 3,622.18 crore for every unit of 2G spectrum, a 13-fold increase over what they paid in 2008 when Raja dished out pan-India permits that came bundled with 6.2 MHz of 2G spectrum for . 1,659 crore. Trai further said the first round of auctions would help establish the value of airwaves, which would be used as the base price for the next round to be held in 2013.
Brekke, who is also the head of the Scandinavian company's India operations that offer mobile services under the Uninor brand, said Trai's recommendations were not in line with the Supreme Court's orders.
"The Supreme Court said new licences should be given through auctions. But according to Trai's recommendations, only one licence, and not licences, can be issued. Even this is theoretical as incumbents can take away spectrum in the first round of auctions and companies like us are therefore finished," he said.
"The main focus of the recommendations is refarming (redistribution) of airwaves in the 900 MHz band. To accommodate this, Trai has said only 5 MHz of airwaves in the 1800 MHz band can be auctioned. This is not what the court ordered. The SC simply said reaward the new licences through auction. The SC couldn't be any clearer," he reiterated.
Trai has recommended that incumbent operators such as Bharti and Vodafone surrender a part of their airwaves in the 900 MHz band by 2014 and replace it with spectrum in the 1800 MHz band. As a result, it has not recommended the auction of airwaves freed up after the Supreme Court-ordered cancellations. Brekke said while issues like spectrum price are of concern, Telenor may not even wait for price discovery in the auction, given the nature of the recommendations.
ROLLOUT OBLIGATIONS IMPOSSIBLE TO MEET
The Uninor MD said the company's primary concern was the quantum of airwaves to be auctioned as well as requirements that the company establish its presence in a certain number of locations, known as rollout obligations. "With 5 MHz, the government would be setting a deliberate policy to reduce competition that has brought affordability. Auctioning 5 MHz when more than 20-30 MHz is available is nothing but creating an artificial scarcity to jack up prices. This will be the smallest spectrum auction in the world," he added.
Brekke added that Telenor would not be able to continue operations if the government insisted on imposing Trai's rollout obligations. "It isn't logical to ask each operator to set up its own tower in every village when this is done smarter through collaboration and sharing between operators. Why use last decade's mindset to solve this decade's priorities?"
Uninor would require an additional 120,000 towers to meet the rollout obligations, making its business here unviable, Brekke said. Brekke also slammed Trai for setting a steep price for airwaves. "We are being charged high spectrum prices and asked to recover them by using this spectrum for 3G and LTE (since this is liberalised spectrum) instead of using it for basic voice telephony that 90% of India uses. This is equivalent to taking from the masses and giving to the classes and goes against the political intention of the government," he added.
The Trai recommendations enable telecom operators to use airwaves for all purposes, including data, to recover costs. However, for most operators, this implies massive replacement of infrastructure, which is unviable, Brekke explained.
Some of the mobile phone companies plan to file a fresh petition in the SC, stating that Trai's recommendations are against the court's orders, according to people familiar with the plan. Brekke said he had 'heard of this plan' and added that 'Uninor had not yet decided to be party to this petition'.
The Supreme Court last week ordered the government to conduct 2G spectrum auctions and grant licences by August 31, rejecting the Centre's plea that it required 400 days to complete the process, even as it allowed the nine mobile companies whose licences were cancelled earlier this year to continue operations till September 7, extending its earlier deadline of June 2.
"The regulator seems determined to complicate this and bring in every telecom issue it possibly can. If this is what the SC wanted, then 400 days would have been allowed. But it wasn't," Brekke said. For now, the apex court seems to be done with its guidelines, and little more can be awaited on that front, he added.
ET reported last week that the DoT may first examine Trai's recommendations to auction 5 MHz of airwaves in the 1800 MHz band and later consider the other proposals submitted by the regulator. Some sections of the telecom department are of the view that setting aside most of Trai's proposals and focusing solely on auctioning 5 MHz of airwaves will enable the government meet the August 31 deadline set by the Supreme Court. But this will result in a limited auction, and not the re-auction of all the airwaves vacated due to the cancellation of licences by the apex court.
