Presidential Reference plunges telecom sector into deep uncertainty

The Presidential Reference on the 2G judgment has created serious uncertainty for investors, customers and banks by placing 102 additional licences either directly or indirectly, under a dark legal shadow.

The Supreme Court had cancelled 122 licences awarded by ex-Telecom Minister A. Raja in 2008 on February 2, 2012. The Presidential Reference has stirred up more grief by seeking clarity from the Supreme Court on the legality of the original 8 (now 7 – after an M&A in the Chennai circle) cellular mobile licences allocated in 1994 since they were not granted through an auction process.

Similar questions have been raised on the 22 basic telecom services (BTS) licences which were allocated under the limited mobility regime in 2001. These licences were converted into Unified Access Service (UAS) licences in 2003. An additional 51 UAS licences granted between 2003 and 2007 on a first come, first served (FCFS) basis based on the 2001 entry fee paid for the fourth cellular mobile licence have also been placed under the legal scanner. Of these, 26 were granted by the NDA government under Arun Shourie's tenure as Telecom Minister and the remaining 25 by UPA-I when Dayanidhi Maran was the Telecom Minister.

In effect, of the 281 mobile telephony licences awarded so far, 122 stand cancelled while the Presidential Reference places an additional 102 under the legal scanner for months, if not years. This leaves merely 57 licences unscathed, including 34 that were granted through a bidding process in 1995, 6 granted in 1997, and 17 awarded through auctions for the fourth cellular mobile licence in mid-2001.

Those affected include all of Aircel's 22 licences; 8 of Bharti Airtel's licences; 17 of Tatas licences; 18 of Reliance's licences; 12 of Vodafone's licences; Idea's 2 licences; and Loop's solitary licence in Mumbai (originally BPL), which together account for 80 licences under the scanner. Adding BSNL's 20 licences and MTNL's 2 licences for Delhi and Mumbai plunges a total of 102 licences into legal uncertainty.

The government has chosen to keep the 22 mobile licences held by BSNL and MTNL out of the Presidential Reference. However, given the fact that these licences and linked 2G spectrum were allocated both without an auction or even the payment of entry fee, it is highly likely that the Supreme Court will need to bundle these with the rest of the 80 licences between 1994 and 2007 on which its opinion has been sought.

With its sweeping range of questions, including even the pricing of spectrum for CDMA and other bands which could impact spectrum allocated beyond 6.2 MHz, the Presidential Reference makes it increasingly difficult for banks to lend to even existing telecom operators with a large number of their licences now under legal scrutiny. It is a further deterrent to any mergers and acquisitions over the next 12-18 months since licences embroiled in litigation and potential cancellation are hardly likely to attract bidders.

The telecom sector has been in paralysis since the CAG's report on 2G spectrum in 2010, hitting a new low in February 2012 after the Supreme Court judgment. The approval of the Presidential Reference by the Cabinet could bring an already bleeding sector to a grinding halt in terms of any forward movement. Legal experts confirm that the Supreme Court is under no obligation to rush its opinion. Rather, given the complexity of the issues and the need to hear all sides on a licence-by-licence basis, any legal reconciliation of the matter promises to be a long and tedious affair.