Licence cancellation favours larger telcos: Fitch

The order by the Supreme Court to cancel the 122 second-generation mobile licenses granted in 2008 is likely to fall disproportionately on the smaller operators in the market, strengthening the hand of the largest players - Bharti Airtel, Vodafone and Reliance Communications.

The ruling follows a drawn-out investigation into corrupt practices surrounding the granting of the licenses. The current licenses will remain in place for four months, during which the government has to decide on fresh norms for issuing licenses.

Fitch Ratings sees the decision hurting many of the newer entrants. In addition to potentially allowing the unaffected players to raise prices, the poor publicity surrounding the spectrum auctions is likely to deter new subscribers until the situation is resolved.

It covers, for example, all of the Telenor / Unitech Uninor JV's licenses, along with some of those owned by DB Etisalat and Sistema Shyam.

"We expect the decision to be ratings neutral for the latter companies' parents, Etisalat and Sistema" Fitch said in a statement.

It said, "While we expect them to explore all possibilities, and the situation remains fluid, on the face of it some of these smaller operators will be faced with the choice to either close operations or re-bid for licenses - although the timing and terms of a possible re-auction of the reclaimed spectrum has not been announced. It is unclear whether some players will have the stomach or resources to invest more to defend businesses which are still in start-up mode.

The decision does not affect any licenses owned by the three largest players in the market - Bharti Airtel, Vodafone and Reliance Communications - which may benefit from any reduction in competition. The Indian market is fiercely competitive, with over a dozen players compared to three or four in most mobile markets.

Operators that will be affected by this order are:

• Telenor / Unitech Wireless Unitel JV (all 22 licences),
  
• Sistema Shyam Teleservices Limited (21 licences),
  
• Etisalat (15 licences),
  
• Idea Cellular (6 licences),
  
• Swan Telecom (13 licences),
  
• Loop Telecom (21 licences),
  
• Videocon (21 licences) and
  
• Tata Teleservices (3 licences).

(Also see: Negative outlook for most Indian telcos in 2012, says Fitch)

(Also see: SC cancels all 2G licences, orders fresh spectrum auction)

(Also see: Telecos shocked and anguished)