India’s communications minister Kapil Sibal said he has called for a meeting with owners of mobile-phone companies to resolve lawsuits that have resulted in a 85 percent drop in overseas investment in the industry.
Sibal, who also oversees the law ministry, will meet the heads of the wireless phone companies in the next two weeks, he said in an interview broadcast by Bloomberg TV India today.
Indian courts are hearing more than a dozen lawsuits from operators and the Department of Telecommunications over cases ranging from wrongful termination of licenses to purchases of mobile-airwaves beyond the legal limit. Foreign direct investment into the world’s second-largest telecom market shrank to $304 million in the year ended March 31, from $2 billion in the previous 12 months, according to government data, after the Supreme Court in February 2012 canceled 122 licenses tied to India’s largest graft case.
“I am going to listen to them as to where are the areas in litigation that needs to be attended to,” Sibal said. “I don’t know exactly where the problem is. We will be extremely constructive about fixing the problem.”
The cancellation of the licenses by the Supreme Court, citing corruption during their original allocation, led to the exit of Bahrain Telecommunications Co. and Emirates Telecommunications Corp. (ETISALAT) Companies including Russia’s AFK Sistema (AFKS), Norway’s Telenor ASA (TEL), Tata Teleservices Maharashtra Ltd. (TTLS) and Idea (IDEA) Cellular Ltd. have filed lawsuits claiming their licenses were wrongfully terminated.
“Multiple issues over several years cannot be resolved in one meeting,” said Harit Shah, a Mumbai-based analyst with Nirmal Bang Equities Ltd. “At best, they can come to common ground regarding the way forward.”
Call rates in India remain among the lowest in the world. With 13 operators offering services to 867 million connections in the world’s second-most populous nation, price wars forced voice rates down to as low as 0.5 rupees (0.9 cents) from as high as 16 rupees in 1995.
“Part of the problem is the industry being at war with each other,” said Sibal in the interview. Other problems are the “bureaucracy” and the “state of the industry today is much worse than it ever was because of the huge debt that it has accumulated” of about 2.5 trillion rupees, he said.
Indian carriers have raised call rates by at least 30 percent since the start of this year by increasing headline tariffs or reducing free minutes, according to Fitch Ratings.
“Indian telcos’ gradual increase in voice tariffs demonstrates the restoration of some pricing power,” Fitch said May 29. “This is positive for the industry following a prolonged period of price-led competition during 2008-12 which eroded profitability and weakened balance sheets.”
Foreign carriers, which have spent a combined $7 billion on Indian airwaves and networks, are waiting for regulatory clarity before increasing investments.
Vodafone Group Plc (VOD) last month said its application to renew licenses for second-generation wireless services in key Indian cities was rejected by the Department of Telecommunications. The carrier’s Indian unit filed a petition in February challenging the department’s decision to re-auction the licenses, which expire in 2014.
Vodafone, the world’s second-largest mobile-phone service provider, is also waiting to resolve a $2.2 billion dispute with Indian tax authorities over the 2007 acquisition of Hutchison Whampoa Ltd. (13)’s Indian unit. Prime Minister Manmohan Singh’s Cabinet approved a non-binding proposal on June 4 to start conciliations with the Newbury, England-based carrier.
Billionaire Sunil Mittal and his Bharti Airtel Ltd. (BHARTI) were last year charged with acquiring more mobile-phone spectrum than the government allowed. Bharti said March 19 the company would fight the charges, calling it “an attempt to tarnish” its reputation.
Shares of Bharti, India’s largest mobile carrier, advanced 0.1 percent to 288.60 rupees in Mumbai trading as of 9:39 a.m. Idea fell 1.9 percent to 126 rupees, while Reliance Communications Ltd. (RCOM) declined 2.5 percent to 113.60 rupees. The benchmark S&P BSE Sensex was up 0.6 percent.
The government may clarify on acquisition rules for service providers as soon as this month. That could clear the way for consolidation, possibly halving the number of carriers and boosting profitability, said PricewaterhouseCoopers.
The government is also considering the date and floor price for India’s next spectrum auction. This would be the first since the government raised just 25 percent of their 400 billion rupee revenue target through a pair of auctions in fiscal 2013. The group of ministers needed to determine the details will meet “in the next couple of weeks,” Sibal said.
“With a hugely liberal regime the sector is going to be a sunrise sector again,” Sibal said. The worst is over, he said.
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