Shares of Unitech Ltd. (UT), part of the group that bought licenses used by Norway’s Telenor ASA for its operations in India, slumped in Mumbai as the court scrapped the permits and ordered operators to pay as much as 50 million rupees ($1 million) as penalty, according to the ruling by judges G.S. Singhvi and A.K. Ganguly.
India’s auditor said in a 2010 report the sale of the airwaves lacked transparency and ineligible bidders bought them at “unbelievably low” prices, denying the treasury of as much as $31 billion. Bharti Airtel Ltd. (BHARTI), India’s largest wireless operator, surged the most in 19 months on speculation the carrier may win more spectrum when the government reallocates the frequencies released by the cancellations.
“Finally, some action is being taken on the scam,” said Deepti Chaturvedi, executive director of equity research at CLSA India Ltd. in Mumbai. “I wouldn’t jump to the conclusion” the cancellations would help incumbents like Bharti, since the spectrum would likely be auctioned, she said.
The corruption allegations have weakened Prime Minister Manmohan Singh’s government and stalled the legislative agenda for most of the last 14 months, while sparking street protests and hunger strikes for an anti-graft law.
Former telecommunications minister Andimuthu Raja, who has denied all wrongdoing, is in jail in New Delhi facing trial, while former officials in his ministry and a lawmaker got bail.
Unitech slumped 6.9 percent, the most since Dec. 16, to 25.10 rupees at the close in Mumbai, while Telenor (TEL) had its biggest intraday drop in three months in Oslo. Reliance Communications Ltd. (RCOM), India’s second-biggest carrier, fell 3.7 percent to 96.70 rupees.
Uninor, the Indian venture between Telenor and Unitech Group, said it had been “unfairly treated,” according to an e- mailed statement today. It will continue operations for the time being and “exercise all options available to ensure that Uninor continues to operate in India.”
The court’s verdict was in response to petitions from non- government organizations and individuals, who questioned the validity of the licenses.
The Supreme Court canceled permits held by companies including Idea Cellular Ltd. (IDEA), Unitech Wireless Pvt., Etisalat DB Telecom Pvt., Loop Telecom Ltd., Videocon Telecommunications, Sistema Shyam Teleservices Ltd. and S Tel Ltd. The court said the companies may continue with their operations for four months.
“The Supreme Court has made up its mind to put in some level of transparency and some level of discipline in terms of how this industry is run,” said Kamlesh Bhatia, an analyst at Gartner Inc. in Mumbai. “Clearly, being at the center stage of a lot of the social and financial inclusion programs the government’s investing in, telecom is a very important industry and should have sustained levels of investment.”
Tata Teleservices Ltd., Unitech Wireless, and DB Realty Ltd. (DBRL) have each been ordered to pay 50 million rupees in penalties, while Loop Telecom and Sistema Shyam Teleservices have been ordered to pay 20 million rupees each.
The court today asked the Telecom Regulatory Authority of India to recommend to the government the next course of action.
The government will abide by the court’s verdict and prepare rules for auctioning the airwaves, Kapil Sibal, minister of communications and information technology, told reporters in New Delhi today. The ministry will “delink” the spectrum it provides to carriers from the permits, he said.
India delayed by six months the announcement of a new national telecommunications policy, which Sibal says will set guidelines for the pricing of spectrum and standardize a procedure for the sale of airwaves.
The paucity of spectrum availability for wireless operators in India was “a curse to the industry,” Samaresh Parida, director of strategy at Vodafone Group Plc (VOD)’s Indian unit, said last month.
Sibal was appointed to the post after former minister Raja resigned in November 2010, two days before the Comptroller and Auditor General of India said in a report that the airwaves were sold in 2008 for 123.9 billion rupees, causing a loss of as much as 1.5 trillion rupees to the nation.
Bharti surged 6.8 percent, the most since July 2010, to close at 385.85 rupees. The stock was the best performer on the benchmark BSE India Sensex, which rose 0.8 percent.
“The next step is, what is the government going to do?” said Hemant Joshi, partner at Deloitte Haskins & Sells. “They have a window of opportunity through the national telecom policy -- hopefully they can bring some clarity through that.”
-- With assistance from Bibhudatta Pradhan in New Delhi. Editors: Subramaniam Sharma, David Merritt
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