India court cancels 122 telecom licences

India cell phone India is one of the world's fastest growing markets for mobile telephones with 800 million connections

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India's Supreme Court has cancelled 122 telecommunications licences awarded to companies in 2008.

The licences were issued by former minister A Raja, who is accused of mis-selling bandwidth in what has been called India's biggest corruption scandal. Mr Raja denies wrongdoing.

Government auditors say the scandal cost the country about $40bn (£24.5bn).

The judges also ordered a court to decide whether Home Minister P Chidambaram should be investigated.

Opposition MPs accuse Mr Chidambaram of failing to prevent the scandal when he was finance minister. He denies any wrongdoing.

Mr Raja is currently on trial for fraud.

India is one of the world's fastest growing markets for mobile telephones with 893 million connections.

Reports say Thursday's verdict is likely to affect about 5% of connections used by mobile phone customers.

India's telecom regulator says the affected subscribers can be transferred to other mobile operators.

Correspondents say the ruling is a setback for the government which has been hit by a series of corruption scandals in recent months.

'Unfair'

"Licences after January 2008 are quashed [cancelled]. The Telecom Regulatory Authority of India will make fresh allocations by auction," Justice GS Singhvi told the court.

Analysis

The Supreme Court order will have significant implications.

It will affect the millions of subscribers of the companies whose licences have been revoked. The consumers will need to change their service providers, or wait for new licences to be issued.

Well-known global telecom firms like SingTel and Docomo, which bought stakes in Indian companies after paying a massive premium, will need to rethink their India strategy and look for legal ways to recover their existing investments.

Sentiments among the domestic and foreign community about doing business in India will turn negative.

Indian banks, which gave huge loans to the new licence holders, will have to show more bad loans, or non-performing assets, on their balance sheets.

The good news: the government can now hold an auction for fresh licences which may result in huge revenues that can positively impact the fiscal deficit in 2011-12.

Petitioner Prashant Bhushan called it a "historic judgement".

"It will change the manner in which corruption will be examined and dealt with in the country," he said.

Reports said some of the companies affected by the court order include Loop, Videocon, Idea Cellular, Tata Telecom, Uninor and Swan.

Uninor, the Indian joint venture of Norway's Telenor, said it had been "unfairly treated" and "was shocked" by the court verdict.

Telenor President Jon Fredrik Baksaas told the BBC that the ruling was "extraordinary".

"There's frustration we are not seeing a regulatory framework with some nuts and bolts so it justifies the numerous investments that we and others have made," he said.

Telenor has 30 million customers in India who face losing their connection in four months, Mr Baksaas said.

"If the worst comes to worst, it will be the end of Telenor's business in India," he added.

The court ruling is a source of further embarrassment for the government of Prime Minister Manmohan Singh which has been hit by several high-profile corruption cases in recent months.

As soon as the verdict was announced, opposition parties began calling for Mr Chidambaram to resign on "moral grounds".

Opposition MP Subramanian Swamy alleges that decisions over the price of telecoms licences were taken jointly by Mr Chidambaram and Mr Raja.

He says Mr Chidambaram as finance minister could have prevented Mr Raja from allocating bandwidth on a "first-come-first-served" basis.

The government says Mr Swamy's allegations are politically motivated.

On Thursday, Telecoms Minister Kapil Sibal defended the Congress Party-led coalition and blamed the opposition government that lost power in 2004 for putting in place the "faulty'' policy for allocating radiowaves.

"The prime minister was in no way responsible, nor was the finance minister,'' he told a press conference.

Blaming Mr Raja for the scandal, he said: "The then minister has been found to have committed irregularities in the allocation of spectrum [bandwidth] on seven accounts."

Mr Sibal said the court verdict had brought clarity on the policy front and the telecoms regulator would prepare guidelines for the auction of radiowaves.

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