The multinational may have only itself to blame for its angst.
Telenor is upset with last week's Supreme Court judgment cancelling its licence, along with 121 others, to provide telecom services in the country.
The Norwegian telecom major, which counts its government as a majority shareholder, has been forced to write off $721 million (approximately Rs.3,600 crore) in the wake of the adverse verdict, and that is only a part of the Rs.14,000 crore that it claims to have spent in rolling out operations through its joint venture with the Unitech group.
“We have been asked to lose all our investments just because India in hindsight has changed its mind. Is that fair?” Mr. Sigve Brekke, head of Telenor Asia, was reported asking.
Is the issue as simple as that? There is a view among some that the judgment, going by how it has dealt a body blow to Telenor and other foreign players, sends all the wrong signals to overseas investors. Such an opinion cannot be farther from reality. The judgment clearly underlines the supremacy of law in the country just as much as it provides clarity in future policy, something that foreign investors should welcome.
Caveat emptor
Telenor's angst is understandable given the financial losses that it is now bound to suffer but then the company has only itself to blame. Caveat emptor or buyer beware is a first principle in any commercial transaction and Uninor is guilty of ignoring it. It walked into Unitech's arms with its eyes wide open and there can be only two reasons for that: either it placed blind faith in its partner and failed to do due diligence or it simply turned a blind eye to reality.
It is difficult to believe that a multinational company would commit billions of dollars in an emerging market without doing its homework. It is therefore reasonable to assume that Telenor was aware of the circumstances under which its partner, Unitech, secured the pan-India 2G licence and yet chose to go ahead. The Norwegian company probably believed — mistakenly in hindsight — that the Indian system can be “worked” any which way.
This fact is borne out by its reaction when the CBI filed its chargesheet in the case in April 2011. “This was a period prior to Telenor Group entering India…,” Telenor said. Professing its zero tolerance for corruption and supporting the legal proceedings, the company even volunteered to add that “if any malpractice has indeed occurred, those responsible must be brought to book.” (Business Line, April 5, 2011). And that is indeed what has happened now.
Mr. Brekke's statement that his company is losing money because “India in hindsight has changed its mind” is not correct. It is not just that the court has decided that the first-come-first-served policy applied was wrong; it has found that the policy was applied under dubious circumstances and is therefore illegal.
Misplaced aggression
Apart from choosing the wrong partner, Telenor also went badly wrong in assuming that the licences would not be cancelled. It therefore went ahead and expanded its network aggressively committing millions of dollars. This is compared to another foreign player, Etisalat, which acquired equity in another successful bidder in the 2008 round: Swan Telecom. Once it realised that the licences were being investigated, Etisalat slowed down its operations and held back further investment. In the last three years of operations, Etisalat managed a subscriber base of 1.69 million; in contrast, Telenor (Uninor) got 36.28 million subscribers. This is a clear pointer to how aggressive Uninor has been in the market. How can the Norwegian company now claim that it was blindsided?
Next steps
So, is it curtains now for Telenor? Probably not, if it plays its cards well. While the option of reviewing the judgment in the Supreme Court is always there, it is something that the multinational should avoid. It can certainly proceed against its partner, Unitech, for misrepresenting the legality of the licences but that could turn out to be a protracted battle.
The best option now is for Telenor to participate in the auction that will take place in the next three to four months and bag a licence that will enable it to continue its business. Of course, that means a fresh investment of a billion dollars, if not more.
Going by its statements in the last couple of days, the company seems to be preparing the ground for this. It wants the auction to be restricted to only those players affected by the court verdict. Prima facie that appears a specious argument because the entire burden of the verdict is that these players acquired their licences illegally. So how can the government now restrict the auction to the same set of players?
The final option for the Norwegian company is to exit the country, sell its assets to other players, and write off the remainder as losses. But can it afford to slam the door on the fastest growing mobile market in the world? Tough call indeed.
rags@thehindu.co.in
Keywords: 2G scam, 2G spectrum allocation, Telenor, 2G licence cancellation
Didn't Telenor have legal counsel advising them on their investment? As a lawyer, I can state that it is incorrect to make an investment without doing proper due diligence. If the legal advise was flawed, they should then take appropriate steps.
Any company should work by rules of the land, be strong in its ethical and moral decision making process. No country or people will welcome a dishonest investor. No one should stand by dishonest and immoral practices. We want honest and long term good investment partners for growth, they should enter into the country for its people and not for few cheap politicians. This judgement stands as a strong verdict upholding the values safeguarded good judicial system in a democracy. It stands tall for those few good men who are honest, and stand by honest values enshrined in US constitution,values highlighted by french revolution, matured judicial system of british. Norway or any other country should encourage strong investments and honest business. It will be best option for partnering between countries on long term. For investors the message is clear, be honest, its good for everyone and you win.
A lot of corruption has taken place in the name of inviting foreign investments. How can you play the aggrieved party when you have knowingly taken part in a scam of gargantuan proportions? The supreme court of Indias verdict is binding on all parties and if that implies a loss to a particular firm, so be it. No company should get away with wrongdoings on the basis of its (upper middle-class)employees being vulnerable. It is exactly this mindset that landed us in an economic depression as is indeed used as a get out of jail card by many corporate firms and has now become a part of standard corporate strategy.
Concise and Wonderfully presented article. India has been long viewed by the petty politics and corruption and now it is time for it to be viewed through the supremancy of its Judiciary.
The court ruling has said that FCFS policy was at faulty. It hasnt found fault with Uninor or any telco operator. Thats a different case in OPSaini's court. License cancellation is precisely a "change of mind" by the government. But this is India what can you do. Govt can decide to do whatever it thinks and that too with retrospective effect. Obviously this journalist does not understand a legal order or hasnt even cared to read the judgement.
The judgement surely sends a positive signal about the supremacy of law
in a country whose reputation is already plagued by corruption scandals.
But if the officials are implicated, should not the multinationals which
are the other parties to transaction be booked? While the judgement
deals with the issue of licences, it did not set any clear cut
guidelines about the path ahead for the companies that already rolled
out their services keeping in view the interests of the customers.
And they say that don't throw good money on bad money.This is what Telenor exactly did after procuring licence to operate in Indian telecom circle.It is for sure that the firm must be knowing about the doubtful means by which it is procuring licences(Although licencing policy was drafted by government) and should have refrained from investing such huge amount in expanding business in India.And the strategy taken by Etisalat was well thought of.Although Uninor has expanded in India...but now it is nowhere.It have to again invest a huge amount (and yes..this time cost of licence is going to be much higher than before) to continue its business in this country.
Overall nice article...now let's see what future have in store for these telecom giants.
If, for so long, businesses(foreign and domestic) thought they should
grease palms and get their way, this verdict and hopefully more to come,
will force them to play by the rules and be wary of bribes. This will
make them a stakeholder in the ordinary Indians' struggle against
corruption. Of course, such transition phases are hard for everyone
involved, but that's how things get better.
It's just a lesson to those who thinks that the system in India can be
worked out, it an eye opener for the future investor who should not
only try to play by law but should also do the due delligence of the
company/individual with whom its going to partner. Agreed its a tough
time for all the Telecom operator, but who should be held responsible
for this, if not they than who else. I have only line to say to these
operators, Sorry!!! mate next time play by law, or do not play at all,
it's a booming India but it will boom and progress as per the law of
land and not as per the whim and fancies of any individual or
operator.
The SC judgement has clearly marked the supermacy of law in a country full of corruption and business malpractices.With the decision on 2G case, a list of concern and action are in the pipeline.Firstly,the steps to be taken by the affected parties and the foriegn players who have invested or entered in joint venture with such parties.One option is to write-off losses, invest in procuring license and continue with business and the other is disappear.India being such a huge economy, will still have players to have a healty competition(from current hyper-competition environment in telecom sector)and the most important part is the growing number of customers and increase in the use of service per customer.
The judgement will only force industry to follow standard practices instead of bending the rules.But obviously a big reason of malpractice is corruption.The industry may find itself juggling b/w politics and law for no good instead of focussing in business growth.
Nice article. It places the facts and analyzes it diligently. Not that Unitech is a saintly organization, in reality it would be the Telenor that would have prodded Unitech to enter into this murky deal. It's time that Telenor reap the benefit. Hope the Government led by Dr.Manmohan, once upon a time known as a man of Integrity and clean image, does not rescue Telenor with some under-the-carpet deals.
Seems a very poorly researched and biased article. Does the journalist in concern have a touch with the market reality? What about the employees of the affected organizations. If the concerned gentleman has read the judgement ( I seriously doubt it!!) it very clearly does not implicate the companies -that is a separate charge which is yet to be decided by courts. This judgement states that the policy of 1st come 1st serve adopted by the govt was flawed and hence it is cancelling the licenses. It also mentions that the same process might have been adopted in 001, however the court could not give a judgement since the said
parties were not before the court. The Hindu being a respectable paper (again a belief), ideally should research the material it prints.
It is indeed exceptional analysis. I wonder what would be the rejoinder.
I am amazed even after the supreme court expressing opinions on 2g, there is no hurry to recover the money from wrong doers.It will disappear in various ways to which these manipulators used to.Time has come they should only be treated as ordinary crooks who ever they may be.
The Supreme Courts judgement on the 2G SCAM will remain a land-mark in India’s past and future growth history . It would be totally wrong to argue that the verdict will have a negative impact on international investors. In fact, it will have the reverse effect - remove any uncertinities investors had when laws were being bent to favour a few ; will add to the credibility of our judiciary ;to our democratic structure and encourage more investors to come and play by the rules of the land . It wll also force investors to read between the lines carefully and have a background verification of the promoter for any risky or unscrupulous means being used ,before investing through them. The judgment has also shown the world that beyond the unscrupulous politicians , we are not a ‘banana repulblic’ ; the rule of law is supreme in India ; and even Govts in power are not above the law . A very favourable decision to encourage more investors to confidently invest into India .
In 1977, US Congress passed The Foreign Corrupt Practices Act to STOP open and flagrant participation of US Corporations in the corruption of foreign governments. Ever since that executives of US corporations have per force "generally" refrained from indulging in corrupt practices to win contracts in foreign lands. Such a law apparently does not exist in Norway (now notorious for its forced adoption laws). So when the going was good Norwegian companies indulged in corrupt practices and benefited from them at the cost of US companies which were prevented from the mud bath. Now that the Norwegian company has been caught red handed, and they cry foul. They deliberately not reign in their companies from playing in the filth, now they got dirty, they come crying to Mama! My heart bleeds for the poor Norwegian Multinationals!
Unitech Ltd is a company that engages in fraud as is seen in a massive land grabbing deal using forged/fake documents for properties at Bangalore. There is a permanent Injunction Order 1232/2007 against Unitech Ltd filed at Bangalore. One needs to check on its future partner before signing deals. Just goes to show how shabbily business was conducted by Telenor.
It may be germane to point out that the vast majority of MNC's who have
set up shop in India over the last 15 years have bent the law and
greased our politicians hands. It is the heights of hypocrisy to turn
around and claim that they 'followed' the law. The Supreme court
judgement hopefully has a quite a few of them re-thinking their business
strategy of subverting the law to suit their corrupt business practices.
I have personally witnessed this process with firms based, both in
Europe and the USA.
Very good article and agree that there are wrong calls too. It is critical now, that the Govt ensure any future FDI processes are completely transparent so that they cannot be challenged and overturned in a Court of Law. Cancellation of licenses has delivered a big blow to the reputation of the govt to create a safe destination for investors. The risk profile of India has taken a hit dur to the malpractices / ineptitude of the Govt and it will take sometime before the confidence can return. Similarly, the process of granting licenses in 2001 needs to be investigated too just to be sure....
Those of who have the opinion that judicial decision is likely to send negative signals to overseas investors needs serious medical attention. What kind of messages would India be sending had SC not cancelled the licenses? India has become sobriquet of corruption and political capitalism in the eyes of overseas investors. In absence of landmark decisions like these India establishes itself as launching pad for investors to grab unrightful contracts by greasing palms of the government. India would also stand for chartbuster Hawala scams which will ramify as a consequence of first cash first serve politics. You will see fattening swiss bank wallets of our 3rd class politicians. India means the correuption capital of world in absence of these decisions. I had high regards for Tata and Ambani's before 2G but all seems to have withered away. Needless to say anything about politics which doesnt go without asterisk in my dictionary.
Please Email the Editor