Two foreign telecommunication companies have decided to close down their Indian operations after the Supreme Court canceled their licenses following a corruption probe. The cancellations have led to uncertainty among foreign investors, but many analysts feel India’s telecommunication sector still offers potential.
Abu Dhabi-based Etisalat says it is shutting down its Indian joint venture because the cancellation of its license will prevent it from operating its mobile phone business. Etisalat is also suing its Indian partner for fraud.
Etisalat said it wants to avoid incurring further costs at a time of rapid change and uncertainty in the Indian telecommunication sector. It paid $890 million for its stake in the Indian mobile operation.
Another foreign communications firm, Bahrain Telecommunication, said it too is quitting India. The two companies are among foreign investors who entered India’s fast-growing mobile phone sector after buying licenses from their Indian partners.
These licenses were awarded by the government to domestic companies in 2008. But earlier this month, the Supreme Court revoked the licenses, citing alleged fraud and irregularities in awarding them. It has been billed as India’s biggest corruption scandal, costing the government $39 billion.
Independent telecommunication analyst, Girish Trivedi, says the development has unnerved investors, who complain they invested billions of dollars to buy government-issued licenses.
“If there is a regulatory flip-flop and lack of consistency, there will always be confusion if you are a foreign institutional investor,” Trivedi said. “There are a lot of unanswered questions in terms of what will happen next, how does the new policy come into picture.”
However, analysts say the huge potential of India’s mobile phone sector could still be attractive enough to draw some foreign investors. India is the world’s second largest mobile market after China, with more than 890 million subscribers.
Trivedi says the fast pace at which new users were added in recent years may be slowing down. But he says many of these subscribers will begin to use cell phones for more applications in years to come.
“If you look at the potential in terms of services, we are still a voice market,” Trivedi said. “There are a lot of opportunities around value added services, data services, which can be explored in times to come.”
Telecommunication Minister Kapil Sibal expressed hope that foreign investors will take part in an auction for new licenses that the government plans to hold. At least one foreign company, Norway’s Telenor, has indicated it may bid for fresh licenses although it has dumped its local partner.