The potentially fully corrupt DoT issued show cause notices to new operators (Uninor, Loop, Etisalat, Videocon, S-Tel and Allianz Infratech – now merged with Etisalat) which are alleged to have suppressed information to get licenses and have also failed to roll out services as mandated. All these operators are alleged to have violated the requirement of including Telecom Sector in their Memorandum of Association/Articles of Association and also some of the operators did not have the requisite paid up capital (Category A circles – Rs 100mn, Category B circles – Rs 50mn and Category C circles – Rs 30m).

In our estimate the total obligation on the new telecom operators for 2G Wireless Licenses as on date to the Government is as follows,

Loop Telecom – Rs 1282 Cr
Etisalat – Rs 1537 Cr
Videocon – Rs 727 Cr
MTS Shyam Sistema – 479 Cr
Uninor – Rs 271 Cr

If the licenses are not cancelled and penalties are imposed it would put further pressure on the new operators’ finances. If the allegations of new operators being ineligible to operate in the Telecom sector are accepted then the pan-India licenses would get cancelled. This would mean fewer players in the sector.

While the cancellation of license due to failure to meet eligibility norms is a possibility, in the case of Uninor, which was the ‘most active’ among the new operators with a reported 11.2mn subscribers (TRAI data indicates 3.5mn active customers), it remains to be seen how the government would ensure continuation of service to its customers.