Corrupt and politicized regulation is rearing its ugly head, spooking telco investment across Asia.

 

Fear, uncertainty and doubt must now be keeping many telco bosses and their investors up late at night in the wake of the Indian Supreme Court ruling that saw 122 2G licenses revoked. 

 

Essentially what has happened is the courts have said that, in hindsight, India could have got more for the licenses by auctioning them out and that they do not believe arguments put forward by TRAI, the telecoms regulator or the commissioner.

 

The state has lost out and so all that has happened since the 2008 sale will be cancelled and everything will start again.

 

The argument goes that, had an open auction been conducted, new entrants would have fought for the licenses and paid through the roof. The high license fees would not have made them effective competitors and, ultimately, they would have lost out to the incumbents who were unburdened by such costs. The competition that was the reason for issuing new licenses would not have arisen and the consumer would have lost out.

 

Take, for example, Mumbai and Delhi. In Delhi there is very little competition, while in Mumbai there is strong competition across 12 circles. Prices in Mumbai are around 60% lower than in Delhi.

 

But this evidence was not sufficient to convince the courts and the revocation decision has been made.

 

The dilemma this raises for the telcos, and indeed for anyone doing business in Asia, is how can a company sign a contract with a government body if it is not sure that contract will be valid, or if they will be sued at a later date for complying with it?