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.

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