How 2G case disrupted the telecom sector

Costs shot up for telecom companies; debt of the sector swelled to H5 lakh crore

Published: 22nd December 2017 09:23 AM  |   Last Updated: 22nd December 2017 10:50 AM   |  A+A-

By Express News Service

NEW DELHI: The CBI court may have acquitted all accused in the 2G spectrum case, but the long-drawn litigation took a heavy toll on the telecom sector, forcing some players to exit the business, eroding the market cap of others, and pushing the sector into Rs 5 lakh crore debt.

The 2G auction marked the entry of eight new players and witnessed investment of Rs 40,000 crore. The market was more competitive which saw reduction in the mobile tariffs by over 50 per cent and adding many new subscribers, making it a sunshine sector.

Post 2G-controversy, in 2012, the Supreme Court cancelled 122 licences given out in 2008, calling the allocation unfair. The allegations of allocating the spectrum at “throwaway prices” forced the government to switch back to the auctions which witnessed highly competitive bidding.

What followed was ‘unreasonably high’ cost of auction price. “This was the beginning of the burgeoning debt problem for the industry, as well as a period of policy paralysis in the government. The effect was far more damaging for the sector,” said Rajan S Mathew, director-general of the Cellular Operators Association of India.

In 2010, 3G and 4G telecom spectrum were auctioned and the government received a total revenue of Rs 1.06 lakh crore and the first auction after the Supreme Court order in 2012 yielded bids worth only Rs 9,400 crore. The government raised Rs 1.9 lakh crore in auction in 2015 and Rs 65,789 crore in 2016.

There were many anomalies in the pricing as well. For instance, the auction price for Delhi and Mumbai was 10 times the reserve price. The auction value of these two circles alone accounted for 40 per cent of the total value received from the auction, even when these two circles’ share of the total telecom revenue was only 14 per cent.

The case also changed fortune of many companies. Shares of Unitech, Tata Teleservices, Essar and RCom never recovered from the blow. Share price of Unitech, which was at Rs 257 in August 2007, is now at Rs 7; share of RCom is down from Rs 530 levels to around Rs 17 levels. The scam forced Loop Telecom, Etisalat, S-Tel and Videocon Telecom to shut their operations while it also resulted in the merger of Sistema with Reliance Communications and  acquisition of Telenor assets by Bharti Airtel.


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