Affected companies set for a bumpy ride

The road ahead for many of the telecom companies affected by Thursday’s Supreme Court judgment seems to be bumpy. With no clarity on the issue of a refund of their licence fee, the question bothering most telcos is if they have to take a substantial write-off on their capex.

Many of these companies are already considering appealing against Thursday’s judgment, perhaps to the constitutional bench of the Supreme Court.

Industry sources said, players like Uninor have convened a board meeting to understand the implication and decide on the future strategy. Some of these newer foreign entities may also seek legal damages from the government or even their Indian partners as the basis of their investments was the procurement of the licence and its validity.

“There could be legal battles between joint venture (JV) partners, but it depends on the individual shareholding agreements. If the JV partner has agreed to give some guarantees and then fails to or if its unclear as to who would bear any hike in regulatory costs,” said a telecom analyst requesting anonymity.

However, compared to Loop, Videocon, S Tel and Etisalat, which have not done much rollouts in the affected circles, Sistema Shyam, Uninor and Idea have been impacted the most, considering they have more at stake.

These three have already made significant investments in network rollouts, brand building and infrastructure. While Sistema Shyam stands to lose 21 licences, for Uninor it is 22.

Both companies have been most serious and aggressive among the new operators who received licences in 2008. Uninor has 36 million customers, while Sistema has 15 million. These make up more than half of the subscribers, among the new operators, which are under the scanner.

Both Shyam Sistema and Uninor came up with strong statements. “The company would like to state that being a law-abiding organisation, it reserves the right to protect its interests by using all available judicial remedies," said a Sistema Shyam statement. Sistema is part owned by the Russian government.

Telenor, the majority partner in Uninor, was equally vocal in its criticism.

“Telenor Group has already invested over Rs 6,100 crore in equity and over Rs 8,000 crore in corporate guarantees as a foreign investor that trusts a licence stamped by the government. We look to the government to arrive at a fair outcome that doesn't jeopardise our lawful investment,” it said in a statement.

It added: “We urge the government to ensure that a foreign investor, that had nothing to do with these processes, is not harmed.”

Most analysts said for players like Uninor, the erosion of the value of their investments in India has been mind-boggling. Will they still have enough financial muscle to go for a rebid is an open question.

“Many of these companies already have stretched balance sheets. Debt financing may not be an option from them as many banks will not lend any more. And debt is very expensive. So, the existing shareholders will have to infuse more equity and they may not be in a position to do so,” said Arvind Subramanian, telecom analyst with Boston Consulting Group.