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Indian court cancels 122 telecom licenses in anti-corruption move

February 2, 2012 |  3:41 am
In a move that could leave tens of millions of India's cellphone-loving consumers without service, the Supreme Court ruled that 122 mobile phone licenses issued to companies after 2008 are invalid and must be canceled

REPORTING FROM NEW DELHI -- In a move that could leave tens of millions of India's cellphone-loving consumers with a busy signal, even as it delivers a political setback to the country’s scandal-racked government, the Supreme Court ruled Thursday that 122 mobile phone licenses issued to companies after 2008 are invalid and must be canceled.

The judgment hits at the heart of a corruption scandal of breathtaking proportions, even by recent Indian standards. By some accounts, alleged sweetheart deals involving the distribution of valuable second-generation telecommunications spectrum in 2008, handed out at 2001 prices, cost India’s treasury over $39 billion. That's more than twice the country's combined education and health budgets for 2011.

"It is the single biggest act of corruption in India," said opposition leader Arun Jaitley. "It's a monumental fraud."

Driver Neeraj Arora, 36, sits on his motorbike, speaking to his wife on his gray Samsung cellphone with a flip-out keyboard. "I couldn’t live without my phone, even for a day," he said. "It's unimaginable. If this scandal affects me and I lose my connection, I'll have to start over with another connection, a big hassle."

The rapid growth of India's huge cellular market and blistering jockeying among competitors have resulted in some of the world's lowest monthly mobile rates. Those factors have also allowed India to all but skip the conventional-telephone stage of telecommunications. The country of 1.2 billion people has 893 million mobile phone users, compared with 33 million fixed telephone lines.

But the low rates and massive uncertainty surrounding this scandal have exacted a high price. The Congress Party-led government, wary of fingering political allies allegedly involved in the scam, has been slow to investigate the irregularities. That has left companies unable to plan, foreign investors unwilling to open their wallets and consumers suffering under frequent dropped calls, poor customer service and massively overloaded networks.

"I think this is an attempt by the Supreme Court to start getting the house in order," said Kamlesh Bhatia, research director with Gartner India, a consultancy.

When the smoke clears, analysts said, several companies could leave the market and up to 50 million consumers could be forced to find another carrier. That said, a recent regulatory change allowing users to switch companies while keeping their phone numbers should help. India has more than a dozen telecom companies, a figure that could be reduced to four or five, analysts said.

"If I somehow lost my number because of this scam, I'd be devastated," said Pradeep Kumar, a businessman based in Bangalore. "Without my phone, I feel like I'm lost in the woods."

Foreign investors could also be big losers -- "the poor foreign investors who came in, followed the rules and did nothing wrong," said Rishi Sahai, director at the consulting firm Cogence Advisors.

And there could be political fallout. Even as former telecommunications minister Andimuthu Raja languishes in jail on corruption charges, the scandal threatens to spread. A lower court is set to decide in mid-February whether former finance minister Palaniappan Chidambaram, a Congress Party heavyweight who's now serving as home minister, was also culpable. If Chidambaram is forced out, that would leave little political cover for Prime Minister Manmohan Singh. "Obviously when the prime minister of the day knew about this and did nothing, there's a problem," Sahai said.

The government has four months to figure out how to implement Thursday's judgment, codify new rules and hold an auction, which analysts said could yield $20 billion.

Though the scandal is the largest in recent memory, it's only one of many weathered by the government recently, involving the sports, defense, space and real estate industries.

On Thursday, the government put a brave face on the setback. "We accept the verdict of the court," said Kapil Sibal, the current telecommunication minister and another Congress Party heavyweight. "We are very happy that issues have been clarified."

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-- Mark Magnier

Photo: An Indian farmer talks on his mobile phone before the mango auction at the Gaddiannaram Fruit Market on the outskirts of Hyderabad. Credit: Noah Seelam / AFP/Getty Images

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