Indian court revokes 122 mobile licences

India’s congested telecoms market is poised for shake-up after the 122 mobile telephone licences awarded in 2008 by Andimuthu Raja, the country’s jailed former telecoms minister, were cancelled in a shock move by the supreme court.

The decision will affect the licences held by Unitech Wireless, a joint venture of Indian real estate firm Unitech and Norway’s state-backed Telenor, whose stock dropped 4.4 per cent on Thursday on the back of the news.

Licences held by rival Etisalat have also been affected but those held by Vodafone and Bharti, the other large operators in the country, were awarded separately. Analysts said that both should benefit from the decision, which could pave the way for consolidation in a fragmented Indian telecoms market by removing smaller companies, as well as potentially freeing spectrum to be auctioned again. Bharti Airtel’s shares jumped nearly 7 per cent.

The top court on Thursday ruled that the licences, which are the subject of a high-profile corruption trial in New Delhi, be cancelled on the grounds that their award by the government was “totally arbitrary and unconstitutional”. It has requested that the Telecoms Regulatory Authority of India prepare for a fresh auction of 2G mobile telephone licences within four months.

Analysts said that the ruling could have significant implications for India’s ailing mobile operators, who have been struggling to boost margins amid a price war among the country’s 15 operators.

“This decision will have a hugely negative impact on the companies involved,” said Romal Shetty, head of telecoms at KPMG India. “These new players now face significant delays before fresh auctions and will then either have to pay more for their licences or exit India entirely.”

Jon Fredrik Baksaas, chief executive of Telenor, described it as a “negative surprise” for the company and negative also for foreign investment into India. He said the company was considering its response. “We committed to a platform that was offered. Suddenly the platform is brought back to zero.”

Robin Bienenstock, analyst at Bernstein, said if Telenor lost its spectrum then its operations in India will be “nigh on worthless” at a cost to shareholders of about $4bn. However, Mr Baksaas put the figure at closer to $2bn, an amount he admitted was still a “huge figure”.

Among the other telecoms companies affected were Russia’s Sistema, Loop Telecom, Tata Teleservices, a partner of Japan’s NTT DoCoMo, and Idea.

The presiding judges concluded that the entire policy under which the licences were awarded by the government of Manmohan Singh, the prime minister, was faulty. Subramanian Swamy, one of the petitioners in the case before the Supreme Court and the head of the Janata Party, said that the court’s judgment reflected the “collective failure” of the Indian government.

Corruption charges levelled against senior government officials and the fast-growing telecoms sector have rocked India’s political and business establishment over the past 18 months. An official audit at the end of 2010 estimated the cost to the country of the botched auction of mobile licences was $39bn.

The 2G corruption case is viewed as one of the worst in India’s post-independence history. Since coming to light, it has sparked nationwide anti-graft campaigns and severely tarnished the reputation of Mr Singh’s government.

A separate petition to the Supreme Court seeking an investigation into the suspected role of Palaniappan Chidambaram, the home minister and former finance minister, was referred back to the CBI’s trial court on Thursday.

Reporting by James Lamont and James Fontanella-Khan in New Delhi, James Crabtree in Mumbai and Daniel Thomas in London