India Suffers From Policy Hiatus

India is undoubtedly one of the most vibrant and important services markets in the world, with more than 660 million active (mostly 2G) mobile connections (of the total 900 million activated lines) and the prospect of multiple Long Term Evolution Time Division Duplex (LTE TDD) service launches in the near future. (See Mobile Line Count Tops 900M and India Inches Closer to LTE TDD.)

But the country's communications services market is in crisis mode as frustrated overseas investors quit (nursing massive losses), and the remaining players search frantically for clarity from the government and regulator. That much was clear from talking to people at the recent Convergence India event in New Delhi. (See Convergence India 2012: Perceptions & Pictures and Convergence India 2012: Hot Topics.)

There are three key problems (but many associated others).

1. Macro policy delay
The first is the ongoing delay of the new National Telecom Policy (NTP) that will provide clarity on multiple issues, including operator ownership rules, M&A guidelines, local manufacturing quotas, license conditions and so on. The policy was originally called NTP 2011 as it was meant to come into effect last year: Following an update in February, current estimates put June as the earliest possible publication date. (See NTP 2012: New Guidelines Favor Incumbents.)

2. Canceled licenses
The second is the fallout from the government's decision in early February to cancel 122 licenses, many of which were held by GSM operators that relied on overseas stakeholders. (See 2G Verdict: SC Cancels 122 Licenses and India in Shock as 122 Licenses Canceled.)

Since the cancellations were announced, two international operators that had taken stakes in local carriers and invested heavily to build out networks and launch services have pulled out of India.

United Arab Emirates giant Etisalat , which entered the Indian market in 2008, announced an impairment charge of just more than 3 billion Arab Emirates Dirhams (US$800 million) as the value of its Indian operator, Etisalat DB (formerly Swan Telecom), was wiped out. (See Etisalat Buys Into India and Swan Telecom Renamed.)

Etisalat also initiated legal proceedings against its local partners in India, and advised the 1.7 million customers of Cheers Mobile, its India operation, to churn to another service provider. (See Cheers Bids Adieu To India.)

Bahrain Telecommunications Co. (Batelco) , meanwhile, is selling the stake it acquired in S Tel Pvt. Ltd. for $175 million, the amount it paid, and quitting the market. (See IndiaWatch: Batelco Gives Up on India and Batelco Ups Stake in India's S Tel.)

All of which adds up to increasing doubts about job security in the sector. (See Mounting Uncertainty Over Job Losses.)

Two other overseas players that were hit hard by the license cancellations, though, are toughing it out and hoping to continue with their endeavors, despite the parlous situation. Telenor Group (Nasdaq: TELN), which owns a majority stake in GSM operator Uninor , is battling to hold on to its investments and position in the market, while it grapples with its local partner (which is selling up) and the government. (See IndiaWatch: Telenor Sues Govt For Arbitration, IndiaWatch: Unitech Seeks $150 MN To Sell JV Stake and IndiaWatch: Telenor Preps New Innings.)

Uninor has invested heavily in its network and in customer acquisition, and has built its customer base up to nearly 39 million (by the end of January), so it's no wonder Telenor is keen not to throw in the towel. (See Uninor Targets Revenues of INR 25B in 2011 and Chinese Freedom Fighter.)

Russia's Sistema JSFC (London: SSA), meanwhile, has been investing in, and attracting other investors to, its Indian operation, Sistema Shyam TeleServices Ltd. , which trades under the brand MTS India. Now the Indian operator is looking to raise further capital, possibly in an effort to acquire new licenses in India. (See IndiaWatch: Sistema Shyam To Raise INR 6 Bn, Russia Buys Into MTS India and .)

And while it hasn't had any of its licenses canceled, there must be days when Vodafone Group plc (NYSE: VOD), which is still not totally clear of a massive tax bill despite India Supreme Court rulings in its favor, wishes it had stayed away from India altogether.... (See IndiaWatch: DoT To Penalise Incumbents and IndiaWatch: Equipment Quotas Plan Breaks Rules.)

3. Spectrum uncertainty
The other big unknown that is so important to the decisions of all players in the country relates to the allocation of spectrum. And we're talking lots of capacity, including the reallocation of the spectrum that has just been grabbed back with the 122 canceled licenses, potential top-up airwaves for the 3G players (which now looks unlikely in the near future) and the possibility that extra LTE spectrum might be auctioned in the 700MHz band. (See End of 3G Era?, Uninor Moves SC to Conclude Auctions by June 2, IndiaWatch: India Inches Closer to 700 MHz Auction, 2G Verdict: Is Auction the Right Way? and IndiaWatch: DoT Unable to Conduct Timely 2G Auction.)

The problem is that no one can be sure when any of this spectrum will become available, how much will be awarded and how much it will cost. As a result the operators are struggling to plan for their immediate futures.

Hopefully, within the next few months the position will become clearer and the wheels of the mobile sector will start moving again, but until then it's a frustrating time for all.

But it's not like there's nothing happening at all in India! Check out these recent articles from Light Reading:

— Ray Le Maistre, International Managing Editor, Light Reading

Flook 12/5/2012 | 5:37:24 PM
re: India Suffers From Policy Hiatus

In light of the bureaucracy in India, it's a wonder outsiders would even want to do business there. That said, there  is money, big money, to be made India--you just have to know how to spread the lucre around...

digits 12/5/2012 | 5:37:19 PM
re: India Suffers From Policy Hiatus

It's certainly not a market for the faint-hearted -- just ask Telenor and Vodafone.

But like you say, there is massive potential and in the mobile services market there is an opportunity to make money even from low monthly average revenue per user numbers.

The main point is that everyone through the whole ecosystem will have a much betetr idea of whether there is a solid business opportunity for them if they knew what the rules/laws/policies were, and currently there's far too much grey and not enough black-and-white. 

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