x Abu Dhabi, UAEFriday 28 July 2017

Indian court cancels 2G licence held by Etisalat

Etisalat loses its mobile-phone licence in India in a dramatic court judgement that threatens to further undermine the UAE company's international operations.

The 2G licences were sold at cut-price rates, leading to a wide-ranging corruption scandal over estimated potential losses to the Indian state of up to US$36 billion. Reuters
The 2G licences were sold at cut-price rates, leading to a wide-ranging corruption scandal over estimated potential losses to the Indian state of up to US$36 billion. Reuters

Etisalat has lost its mobile-phone licence in India in a dramatic court judgement that threatens to further undermine the UAE company's international operations.

In a culmination of one of the largest corruption scandals in India, the supreme court ordered the cancellation of 122 second-generation, or 2G, mobile licences granted in 2008.

The licences were sold at cut-price rates, leading to a wide-ranging corruption scandal over estimated potential losses to the Indian state of up to US$36 billion (Dh132.2bn). Swan Telecom was one of the companies that acquired the licences. Etisalat later acquired a stake in the firm and the company was renamed Etisalat DB.

The future of that venture, and several other operators active in India such as Telenor and Russia's Sistema, is in doubt after the court's verdict.

Etisalat said it was assessing the ramifications of its Indian joint-venture being stripped of its mobile licence.

"The Supreme Court of India issued today a judgement cancelling all 122 of the 2008 spectrum licences granted to eight operators [including Swan]," Etisalat said.

The company also said the court judgement included "a fine on all licensees who sold equity to foreign investors after issuance of the licences".

The UAE telecommunications firm reiterated that it was not aware of the details of the licence application before it invested in Swan, nor was it involved in the application.

Analysts said the court verdict had serious implications for the companies that had the licences cancelled. "It's quite a big and dramatic move to actually cancel the licences," said Matthew Reed, a senior analyst at Informa Telecoms & Media.

A fresh auction for licences is expected to be held in the next four months, according to press reports.

Mr Reed said Etisalat would probably pursue another licence in a bid to continue its operations in the fiercely competitive Indian telecoms market. "I think they are likely to be still interested in India," he said. "It would be quite a wrench to give it up entirely."

However, he added Etisalat DB had got off to a slow start, having attracted a relatively small number of subscribers.

"They only have around 1.5 million subscriptions: 1.5 million subscriptions in India is not far off a statistical error. It's a tiny number," said Mr Reed. "I guess there's a chance they'll just decide to cut their losses."

Alok Shende, the founder director of and an analyst at Ascentius Consulting, said the Indian government was likely to consider the investment operators such as Etisalat had made when reallocating the licences.

"The government will have to come up with some policy that addresses the investments that happened in the past," said Mr Shende.

It is unlikely the government will be able to raise $38bn from a fresh allocation of the 2G licences, he added. "It will not come to that number."

The news comes amid mounting competition in Etisalat's UAE home market, declining profitability across its group operations and its failed acquisition of the Kuwaiti operator Zain last year.

In a sign Etisalat is looking to raise cash, it emerged on Wednesday it planned to sell up to 5,000 mobile-phone towers in Africa. It is hoping to raise up to $600 million in the process, according to Zawya Dow Jones.

Etisalat said in a statement to the Abu Dhabi Securities Exchange (ADX) that "regarding the recent news about Africa tower sales, Etisalat would like to clarify that assessment of potential infrastructure sharing or sale is still at a preliminary stage". Any final decision will be subject to the approval of the board, the company said.

Shares in Etisalat, which trade on the ADX, yesterday edged up 0.11 per cent to close at Dh9.50 each.

bflanagan@thenational.ae

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