India’s 2G spectrum scandal has cast a cloud over the country’s telecoms sector so dark that former Telecoms minister Andimuthu Raja is said to feel safer in prison than he does walking down the street.

He has been sat in a cell for over a year, refusing to post bail and stands accused of taking bribes to sell spectrum to prospective mobile operators at discounted rates; “virtually gifting away an important national asset at throw away prices” in the words of a Supreme Court Council of Ministers.

India’s 2008 2G licence sale was intended to attract foreign investors into India, and after spectrum was purchased by Indian companies, a number of overseas players did indeed entere the fray. Norway’s Telenor, Sistema of Russia, Etisalat of the UAE and Batelco of Bahrain all joined forces with Indian businesses to launch services to the country’s 1.2 billion-strong population.

Telenor partnered with an Indian real estate firm, Unitech, which bought spectrum in the 2008 sale, while Etisalat set up a JV with Swan Telecom, a new company set up by the founders of another real estate firm, DB Realty. Reliance Telecom also subsequently purchased a 9.9 per cent stake in Swan Telecom.

Swan and Unitech are alleged to have played a part in the corruption scandal, which leaves their foreign partners twisting in the wind.

Special public prosecutor U.U. Lalit, representing the Central Bureau of Investigation (CBI), questioned the circumstances in which the spectrum was acquired:

“Swan Telecom and Unitech got the telecom licences despite their complete ineligibility [to use them]. Both the companies off-loaded their shares soon after getting the licences and garnered around Rs 7,300 crore ($1.48bn) in the process,” he told the Supreme Court.

Meanwhile, Shyam Telelink Limited and Shyani Telelink Limited decided to operate together with their combined 21 licenses, and during late 2008, Russia-based group Sistema bought majority stake in the company, which now operates under brand name MTS India.Bahrain’s Batelco set up a subsidiary company, BMIC Limited, which acquired 42.7 per cent equity in STel for BD65.8m ($174.5m).

Now though, all of the companies that bought spectrum are set to lose those licences, and no form of compensation is on the cards.

Telecoms.com understands that the companies now under investigation by the CBI are Unitech, Reliance Telecom, Swan Telecom, Loop Telecom and Essar. Energy group Essar was found to have a controlling stake in Loop while also holding a stake in Vodafone.

It has been suggested that Unitech and Swan Telcom sold stakes in their firms to Telenor and Etisalat at much higher rates than acquired them for. Telenor Group injected INR 61.35bn ($1.25bn) operating capital directly into Unitech Wireless to take a majority stake in the company. Etisalat has said it invested more than $1bn into Etisalat DB. It has been reported that Unitech’s 22 Pan-India licences cost a mere Rs.1,658 crore ($337m) at the time of purchase.

For now the foreign investors are not being accused of conniving in any part of the scandal. In addition to the fact that they all paid higher rates for access to the spectrum, there was apparently little or no suspicion of any corruption in the 2G spectrum allocation at the time that Etisalat and Telenor decided to invest. And they, it seems, did not find any cause for concern when they did their due diligence.

Having blundered into this mess, they now face the prospect of losing substantial investments; and of being forced to lay out more capital if they want to stay in a market where they have built significant subscriber bases. They couldn’t be blamed if they decided to write the whole thing off as a bad job, but they seem motivated to pursue their Indian adventures.

Telenor’s VP for group communications for mobile, Tor Odland, told Telecoms.com: “We definitely don’t think of it as a lost cause. It will be challenging but we are inspired to continue.”

Batelco has exited the Indian market in the short term, selling its stake in STel to Indian firm Sky City Foundation Limited for the same $174.5m that it acquired it for. However, the Bahraini operator intends to re-enter the Indian market after the sale is complete and said that it is open to other opportunities later down the line.

Etisalat has written off a figure of $827m, the value it places on its operation in India, and warned that it may suffer a further financial impact as a result of the scandal, but the UAE operator said it is still considering its strategic options in India.

As if to rub their noses in it, the new Indian telecoms minister seems breezily unconcerned about their plight.In comments to the local press Kapil Sibal said: “Protection of interests is not the function of the government. Any party that feels aggrieved can approach the courts.”

(This appears to be at odds with what is happening elsewhere in the country, as India has recently liberalised foreign investment regulations in many of its key sectors, opening up commodity exchanges, credit information services and aircraft maintenance operations to foreign firms.)

The extent of corruption in India has now presented itself on a world stage, and if the allegations made against Raja and the other defendants in this case are true, it suggests that fraud and corruption are still a deep–rooted problem in India – just not enough of one to deter foreign investors like Telenor and Batelco. It seems strange that the aggrieved foreign investors are not making more of a fuss about their losses.

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  • India is a great country with so much potential in world market for years to come. It is hard to conduct business with integrity and attract investment.
    Damaged control must be done immediately. All the crooks, including high level officials, must be prosecuted. New independent team will take over and negotiate current and future wireless spectrum.
    I do have a simple solution and business plan to offer. Would you be interested?

    Reply to Charles Tran on India and the Spectrum Scandal
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