The past year has undoubtedly been the most challenging one in India?s telecom history. On February 2, 2012, the Supreme Court revoked 122 controversial telecom licences awarded in 2008. What followed was a long period of regulatory uncertainty, from which the industry is yet to make a full recovery.
While the licences of some incumbent operators figured in the list of those cancelled, the operations of new entrants such as Uninor, Sistema Shyam TeleServices Limited (SSTL), S Tel, Videocon Telecommunications, Etisalat DB and Loop Telecom were the worst hit. Consequently, some players exited the telecom space. Those which stayed on sought damages for their jeopardised investments.
S Tel, which lost licences in 21 circles, became the first company to shut shop as the Bahrain Telecommunications Company divested its 43 per cent stake in the Indian operator. The move was followed by Etisalat DB?s exit from the Indian telecom space. UAE-based Etisalat had entered the Indian market in 2008 by buying a 45 per cent stake in DB Realty-promoted Swan Telecom for $900 million. The ruling resulted in the cancellation of all of its 15 licences and the company took a $829 million hit on its Indian earnings. Finally, Loop Telecom shut down its operations in April 2012. While the operator had licences for 21 telecom circles (all of which were cancelled by the Supreme Court), its services were available in 13 circles. However, it continues to operate in the Mumbai circle through sister concern Loop Mobile. Meanwhile, Norway-based Telenor, which has been offering services through its partnership with Unitech Wireless, decided to stay on, though it had to write down $721 million from its Indian operations. SSTL, which had carved a niche for its CDMA services under the MTS brand, also decided to stay. It reproached the Supreme Court?s judgment and is currently awaiting a response to its curative petition.
In November 2012, the government auctioned the vacated 2G spectrum, but the high reserve price played a major damper, resulting in limited participation and consequently lower revenues for the exchequer. While Uninor and Videocon each won spectrum in the 1800 MHz band in six circles, SSTL chose to stay away from the auction process.
Some respite came in the form of the government?s decision to refund the licence fee paid by these operators in 2008 for spectrum acquisition. For players who participated and were successful bidders in the 2G spectrum auction held during November 2012, the amount will be adjusted against their current bids. Also, the spectrum which will be put up for sale in March 2013 will involve a lower base price.
While the government is banking on this round of spectrum auction to meet its revenue targets, operators are hopeful of regaining lost ground. In a bid to ensure uninterrupted services, the Department of Telecommunications (DoT) had filed an affidavit with the Supreme Court seeking extension of the licence period from January 18, 2013 to after the second round of auctions. Subsequently, the apex court has extended the licence period to February 4, 2013.
tele.net takes stock of how the past year panned out for the new players?
Uninor
The past year has been a challenging one for Uninor (now called Telewings Communications), the erstwhile joint venture (JV) company of India?s Unitech Wireless and the Norway-based Telenor Group, on various accounts. The Supreme Court ordered the cancellation of the operator?s pan-Indian 2G licences, putting Telenor?s investments worth Rs 140 billion in the JV in jeopardy. While the operator continued to reiterate its plans to remain active in the Indian telecom space, policy uncertainty left it with few options but to scale down operations in some circles. As a result, since July 2012, Uninor has gradually limited its operations in the circles of Tamil Nadu, Kerala, Karnataka and Odisha to focus on lucrative service areas.
The company?s commitment towards India was also reflected in its plans to bid for spectrum in November 2012. However, the high price of spectrum played a damper and the company limited its bids to its high-revenue service areas. Consequently, it acquired 5 MHz of spectrum each in the Andhra Pradesh, Bihar, Gujarat, Maharashtra, Uttar Pradesh (West) and Uttar Pradesh (East) circles.
Another key issue that has impacted the operator?s growth was the dispute between the promoters, Telenor and Unitech Wireless. After a long legal process, the two sides parted ways in October 2012, when Unitech Wireless agreed to Telenor?s demand for the transfer of Uninor?s assets to a new entity. Thereafter, Telenor entered into a partnership with Lakshdeep Investment and Finance to form a new Indian JV, Telewings Communications. Telenor participated in the 2G spectrum auction in November 2012 through this company.
These challenges notwithstanding, Uninor performed strongly on the financial front. Its operating losses reduced from Rs 10.37 billion for the quarter ended September 2011 to Rs 5.12 billion for the corresponding quarter in 2012. Meanwhile, it had a 4.54 per cent wireless market share and a subscriber base of 40.06 million as of November 2012.
In November 2012, the operator marked a major milestone by attaining break-even for its business in the Uttar Pradesh (East) circle. It is confident of achieving this in all the newly acquired six circles by end-2013. Further, it is planning to bid for the coveted Mumbai circle in the upcoming 2G spectrum auction.
SSTL
SSTL, the Indian venture of Russia-based Sistema, provides CDMA services under the MTS brand in India. The Russian government holds 18 per cent stake in the company while Russia?s Sistema JSFC owns around 56 per cent. The remaining 26 per cent is held by the Shyam Group. The past year has proved to be a testing one for the company as SSTL lost all its 21 2G licences.
As a result, the company spent the better part of 2012 convincing the government to exempt it from the Supreme Court order, on grounds that it was the only company that had applied for CDMA spectrum and thus the first come, first served basis did not apply. Currently, SSTL is awaiting a response to its curative petition filed with the apex court, asking for a review of the February 2012 judgment. The company chose to not participate in the recent spectrum auction, hoping instead to resolve the issue with the apex court. The high price of spectrum was another reason behind the move.
Even amidst uncertainties, SSTL has been able to sustain revenues from the non-voice services segment and data services. Value-added services contributed about 36.7 per cent to its total revenues, which stood at Rs 4.04 billion for the quarter ended September 2012. The net losses stood at about Rs 5 billion during the quarter. Further, the operator managed to source about Rs 4.8 billion from banks to optimise its cash outflow. As of November 2012, its subscriber base stood at 15.67 billion.
Going forward, SSTL is hopeful that the diplomatic relations between Russia and India will play a major role in finding a positive solution for the company. The operator has already invested about $3 billion in India, of which Sistema invested $2.4 billion and the remaining was provided by the Russian government, highlighting the strong foreign direct investment movement between the two countries. The union cabinet?s recent approval to reduce the reserve price for the 800 MHz band by 50 per cent in the upcoming spectrum auction will encourage SSTL?s participation in the auction.
Videocon Telecommunications
The journey of Videocon Telecommunications has been a tough one since its service launch in March 2010. The company initiated service launch from the Chennai circle, setting a target of 100 million users within three years. However, as of November 2012, Videocon?s telecom subscriber base stood at only 9.01 million. The company?s efforts to bring in a foreign partner have proved to be futile and its attempts to sustain itself in the hypercompetitive sector have had a strong bearing on its operations and finances. A major blow came in the form of licence cancellation by the Supreme Court in early 2012.
Thus, Videocon?s aggressive participation during the recent auction surprised the industry. The company was able to regain spectrum in six circles (Bihar, Haryana, Gujarat, Madhya Pradesh, Uttar Pradesh [East] and Uttar Pradesh [West]) for Rs 22.21 billion. Videocon?s GSM services will continue in the Punjab circle, where it is operating under a brand sharing agreement with HFCL Infotel Limited.
In the coming year, the company would be required to make large investments to increase the subscriber base in its seven areas of operation. It is also planning to utilise the recently won spectrum for offering 4G services in the country.
