Telenor Case Study


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A Case study on the cancellation of Telenor's 2G License.

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Telenor Case Study

  1. 1. Will Telenor Fight its way back???(Case Study of Telenor’s Loss due to 2G Scam) SUBMITTED BY : Aabhas Rastogi AnuragBhargav Abhishek Gupta Joseph Thomas Mayank Gaur MayankSahajwani ParasArora TarunGautam
  2. 2. INTRODUCTION"The ruling is a very serious attack on our investments, (which are) based on the licenseframework that was spelt out in 2008,"this was the reaction of Jon Fredrik BaksaasCEO ofTelenor following the Supreme Court verdict on cancellation of 2G licenses. He further added“We met every inch of that regulation of that license. We have brought competition to the Indianmarket ... just to see a ruling that has significant retroactive consequences. It is an action that wehave never seen in any country before." Baksaas’ anxiousness was revealed in an interviewwhere he was also quoted saying “Obviously in a situation with the threat of taking your licensetaken away, the value chain will start asking questions,". Telenor known as Uninor in Indiaclaims that it has to bear huge losses, even though the whole fiasco was on part of Indiangovernment. 2G scam has greatly affected Norwegian firm Telenor as they are already in twothirdways of their investments. This has created such huge repercussions that Norwegian ITMinister Mr.RigmorAasrud is planning to meet Mr. KapilSibal Indian telecom ministerconcerning the matter. Relation between two countries are now at stake and all further foreigninvestments will be skeptical, what Indian Government plans to do as next step to maintain itscredibility.BACKGROUNDTelenor Group is the incumbent telecommunications company in Norway, with headquarterslocated at Fornebu, close to Oslo. Today, Telenor Group is mostly an international wirelesscarrier with operations in Scandinavia, Eastern Europe and Asia, working predominantly underthe Telenor brand. At the end of 2010, its 203 million subscribers made it one of the largestmobile phone operators in the world. In addition, it has extensive broadband and TV distributionoperations in four Nordic Countries, and a 10-year-old research and business line for Machine-to-Machine technology.At year-end 2005, Telenor held controlling interests in mobile operations in Norway, Denmark,Sweden, Serbia, Ukraine, Hungary, Montenegro, Thailand, Malaysia, Bangladesh, India and 1
  3. 3. Pakistan. Telenor also holds minority interests in mobile operations in Russia, having recentlysold a minority share in Austria.Telenors mobile commitments in Asia and Eastern and Central Europe are becomingincreasingly important and to ensure optimal follow-up, Telenor has appointed dedicatedExecutive Vice Presidents for these regions. Telenor has also strengthened the co-ordination ofoperational and human resources across all the countries in which the group has operationsthrough the appointment of two new Executive Vice Presidents to the Group ExecutiveManagement.TELENOR ENTRY IN INDIATelenors joint venture with Unitech, which operates under the Uninor brand, has been amongthe most aggressive of Indias newer telecoms companies. The Telenor Group invested INR61.35 billion through new shares to hold 67.25% majority stake in the company. This investmenthas been used as working capital for the joint venture. Telenor’s investments in Unitech Wirelesshave been cleared at each stage by the Foreign Investment Promotion Board (FIPB). Uninor hasclose to 40 million customers, or more than 4 percent of the market.Uninor started its mobile services on 3 December 2009, in 21 of the 22 circles in India. Telenorhas acquired a 67.25% equity stake in Unitech Wireless, which has the requisite governmentapprovals and licenses to provide mobile services pan-India. It has rolled out its network nation-wide under the brand name Uninor. Since August 2010, Uninor has been growing at a rapidpace, adding 1.5-2 million customers every month. Optimizing its operations with limitedspectrum available, Uninor has pioneered a number of network capacity innovations andoperational excellence efforts that can potentially be applied also in other Telenor markets.Uninor’s Corporate Office is located in Gurgaon, Haryana, just outside Delhi. It has 13 circleoffices, one in each of the circles where its services are commercially available, as well as anumber of zonal offices and technical offices.The circles offices are in: Kochi – Kerala circle, Chennai – Tamil Nadu circle, Bengaluru –Karnataka circle, Hyderabad – Andhra Pradesh circle, Bhubaneswar – Orissa circle, Kolkata –Kolkata circle, West Bengal circle, Patna – Bihar & Jharkhand circle, Lucknow – Uttar Pradesh 2
  4. 4. East circle, Noida – Uttar Pradesh West circle, Pune – Maharashtra & Goa circle, Mumbai –Mumbai circle, Ahmedabad – Gujarat circle.CONTROVERSIES2G LICENSE ALLOCATIONUnitech Wireless was one of the would-be telecom companies that received 2G licenses in 2008.In 2008, 122 new 2G spectrum licenses were given to telecom companies at the price of 2001and on first come first serve basis. (Refer Appendix 1.1). The Central Bureau of Investigation(CBI) says that several rules were violated and bribes were paid to favor certain firms whileawarding 2G spectrum licenses. The method chosen by the authorities to allocate these licenseshas later been subject to controversy as part of the 2G license allocation case. Under auctionprocess of 2G licenses, eight companies belonging to the Unitech Group were awarded telecomlicenses. The licenses obtained by the telecom arm of the Unitech Group were the basis forTelenor Group’s investment into the joint venture. Unitech Wireless companies were lateramalgamated into one company, Unitech Wireless (Tamil Nadu) Pvt. Ltd.Companies like Unitech & Swan Telecom got licenses without any prior telecom experience.Unitech Wireless, a subsidiary of the Unitech Group, got license for Rs. 1661 crore and later sold60% stake for Rs. 6200 crore to Norway based company Telenor.Due to the controversy of the 2G license allocation case (Refer Appendix 1.2 for 2G scam),Unitech Ltd.s Managing Director Sanjay Chandra (who was also earlier the Chairman of theBoard of Unitech Wireless) together with the company Unitech Wireless, have come underinvestigation by the Indian Central Bureau of Investigation (CBI).Mr Sanjay Chandra during hisinvestigation said, “Unitech ltd is a responsible for corporate, functioning within the theguidelines prescribed by the sovereign government and abiding by the law of land has been fullyco-operating with the investigating agency. Unitech has co-operated wilth all the investigatingagencies from the very beginning, as we have nothing to hide. "These investigations are connected to Unitech Wireless at a point when the company was fullyowned by the Unitech Group. Subsequently, Unitech’s Managing Director and the erstwhilechairman of the board of Unitech Wireless, Sanjay Chandra, together with individuals from other 3
  5. 5. telecom operators were taken into custody in early 2011. This trial is now ongoing in the Indiancourts.In February 2012, a special court consisting of two Supreme Court justices issued a judgment ina public interest litigation (PIL) case connected to the 2008 allocation of telecom licenses. Thejudgment directs the Indian telecom regulator, TRAI, to recommend a process for re-allocationof the 121 licenses that were issued in 2008. This process must be concluded within four months,i.e. by June 2012. Uninor operations and services continue and will not be interrupted.SPAT BETWEEN UNITECH AND TELENORThe spat between Unitech and Telenor has also intensified, with the Indian real estate majorquestioning its Norwegian partner for allowing MrSigveBrekke to continue to be Uninors chiefdespite not getting security clearance. According to rules specified for telecom companies,foreigners holding top positions are required to get security clearances every year. MrBrekke hadapplied for the clearance in November 2011 but has not got the approval so far.When contacted, the Telenor spokesperson said that the delay in getting clearance was due toprocedural issues within the Government.“MrBrekke accepted the position of MD of Uninor after full security clearance from the DoT.The extension of this clearance has been applied for and is currently being processed. We havenot received any query or request for any additional information of any sort from the DoTregarding this process. Furthermore, it is commonplace for procedural delays at the DoT for suchprocesses and these have happened for several other expat MDs of Indian telecom companies,”the Telenor spokesperson said.Unitech had raised this issue along with Telenors Pakistan connection at Uninors board meetingon Thursday. At the meeting, Unitech and Telenor agreed to set up two committees to manageexpenses and projects undertaken by Uninor. The two committees will be headed by thenominees of Unitech. 4
  6. 6. But there are differences on the mandate of these committees. The two partners also differ on theneed for a rights issue, with Unitech opposing the move.INVESTESMENTS AT STAKEAll these controversies affected the Telenor’s shares which were down by 2%. Norways leadingtelecom firm Telenor announced it will write down around Rs 3,570 crore in 2G licences andIndia goodwill on its accounting books.Further it has said that it would file a review petition in the Supreme Court and also take up thematter with the government to secure its over Rs 14,000 crore investment.The telecom companyhas also discussed the issue with the Norway Government and it is said that the NorwegianGovernment are ready to support them.The Norwegian Government has majority 54 percentstake in Telenor Group, which in turn has over 67 percent stake in Uninor with remaining beingheld by Unitech. Telenor is said to have around 4.2 billion crowns ($722 million) related to itsIndian operations.Losses to Telenor group have created impact on relations between Norway andIndia, to add on to this Norwegian IT Minister is planning to get in talks with India. Thecompany, however, asserted that it was waiting for new rules on spectrum auction and said itwould participate in it but did not rule out exit option depending upon its success in acquiringspectrum.Of course exit will always be an option for Uninor, but is Uninor willing to lose its investmentswithout a fight???KEYWORDS:2G licenses,Unitech, Telenor, Uninor,Norway Government, TRAI,Telecom Regulator, SpectrumAuction 5
  7. 7. Appendix 1.1 6
  8. 8. Appendix 1.2CHRONOLOGY OF 2G SCAM2007 May: Raja takes over as Telecom Minister. Aug: Process of allotment of 2G Spectrum for telecom along with Universal Access Service (UAS) Licences initiated by the Department of Telecommunications (DoT). Sept 25: Telecom Ministry issues press note fixing deadline for application as October 1, 2007. Oct 1: DoT receives 575 applications for UAS licences of 46 companies. Nov 2: PM writes to Raja directing him to ensure allotment of 2G spectrum in a fair and transparent manner and to ensure licence fee was properly revised. Raja writes back to PM rejecting many of his recommendations. Nov 22: Finance Ministry writes to DoT raising concerns over the procedure adopted by it. Demand for review rejected.2008 Jan 10: DoT decides to issue licences on first-come-first served basis, preponing the cut- off date to September 25, from October 1, 2007. Later on the same day, DoT posted an announcement on its website saying those who apply between 3.30 PM and 4.30 PM would be issued licences in accordance with the said policy. Swan Telecom, Unitech and Tata Teleservices sell off a part of their stakes at much higher rates to Etisalat, Telenor and DOCOMO respectively. Nov 29: Subramanian Swamy makes representation to the PM, seeks sanction to prosecute Raja under the Prevention of Corruption Act. 7
  9. 9. 2009 May 4: NGO Telecom Watchdog files complaint to CVC on illegalities in spectrum allocation to Loop Telecom. CVC directs CBI to probe allocation of 2G spectrum. July 1: Delhi HC holds advancing of cut-off date as illegal on a petition of telecom company S-Tel. Oct 21: CBI lodges FIR against unknown persons including DoT officials under the IPC and the Prevention of Corruption Act. Oct 22: CBI raids DoT offices. Nov 16: CBI seeks details of tapped conversation of corporate lobbyist NiiraRadia to find out involvement of middlemen in grant of spectrum to telecom companies.2010 Mar 31: CAG reports large scale irregularities. May 6: Telephonic conversation between Raja and Radia made public. NGO Centre for Public Interest litigation moves Delhi HC seeking probe into scam either by SIT or CBI. May 25: Delhi HC dismisses the petition. Aug 10: The NGO moves SC against HCs verdict. Aug 18: Delhi HC refuses to direct PM to decide on Swamys complaint seeking sanction to prosecute Raja for his involvement in 2G scam. Sept 13: SC asks Centre, Raja to reply in 10 days to three petitions of CPIL and others on allegation there was aRs 70,000 crore scam. Sept 24: Swamy moves SC seeking direction to the PM to sanction Rajas prosecution. 8
  10. 10. Oct 8: SC asks government to respond to CAG report about the scam.Oct 21: Draft reports of CAG placed before SC.Oct 29: SC pulls up CBI for tardy probe in the scam.Nov 10: CAG report says the scam caused a loss of Rs 1.76 lakh crore to exchequer.(More) PTI AKI SJK RKSNov 11: DoT files affidavit in SC saying CAG did not have authority to question policydecision on 2G licenses.Nov 14: Raja resigns as Telecom Minister.Swamys plea on sanction to prosecute Raja becomes infructuous. He seeks guidelines ongrant of sanction to prosecute public servants for offences under the Prevention ofCorruption (PC) Act.Nov 20: PM files affidavit in SC. Rejects charge of inaction on Swamys complaint.Nov 22: CBI tells SC that it will file charge sheet in the case within three months.Nov 22: CBI tells SC that it will also examine the role of Radia.Nov 24: SC reserves verdict on Swamys plea seeking direction to PM for grant ofsanction to prosecute Raja.Nov 25: SC ticks off CBI for not questioning Raja.Nov 29: CBI files status report on probe in the case.Nov 30: SC questions CVC P J Thomass moral right to supervise CBIs probe into 2Gspectrum scam as he himself was Telecom Secretary at that point of time.Dec 1: SC seeks original tapes on conversation between corporate lobbyist NiiraRadiaand others.Dec 1: Raja questions CAG findings in SC.Dec 2: Government places recorded tapes in the SC.Dec 2: SC comes down on Raja for overruling PMs advice to defer allocation of 2Gspectrum by a few days.Dec 8: SC favours probe into spectrum allocation since 2001.Dec 8: SC orders setting up of a special court to try 2G spectrum scam case. 9
  11. 11. Dec 8: ED submits report. Says money trail covers 10 countries, including Mauritius. Dec 14: Another PIL in SC for cancellation of telecom licences granted by Raja. Dec 15: Swamy, in complaint, says Raja favoured "ineligible" companies like Swan Telecom and Unitech.2011 Jan 4: Swamy also seeks cancellation of 2G licenses. Jan 10: SC notice to Centre on the plea seeking cancellation of 2G licenses. It also seeks responses from 11 firms for not fulfilling roll-out obligations. Feb 2: Raja, former Telecom Secretary SiddarthaBehura and Rajas former Personal Secretary R K Chandolia arrested. Feb 8: ShahidUsmanBalwa, promoter of Swan Telecom, arrested. Feb 10: SC asks CBI to probe corporate houses, alleged beneficiaries of the 2G scam. Mar 1: CBI tells SC that 63 persons were under its scanner. Mar 14: Delhi HC sets up special court for 2G case. Apr 2: CBI files first charge sheet in the case. Apr 25: CBI files second charge sheet and Kanimozhi, Sharad Kumar and KarimMorani summoned. May 20: Court rejects bail pleas of Kanimozhi and others and orders their arrest. July 25: Arguments on charge framing begins. Raja seeks to make PM and P Chidambaram as witnesses. Aug 23: Swamy moves SC for making Chidambaram as accused. Sept 8: SC asks Swamy to submit his correspondences with CBI in connection with his plea to probe Chidambaram for his alleged role in the 2G scam. Sept 8: SC agrees to hear CPILs plea for setting up of a Special Investigating Team (SIT) to monitor probe. 10
  12. 12. Sept 15, 2011: Janata Partys Swamy moves Special CBI court to make Chidambaram a co-accused. Sept 22: CBI defends Chidambaram in SC, blames DoT. Sept 29: CBI says role of Anil Ambani being probed, gives a clean chit to Tata and Videocon group. Oct 10: SC reserves order on Swamys plea for a probe into the alleged role of Chidambaram in the 2G scam. Oct 22: Special court frames charges against Raja and 16 others in the 2 G case. Nov: Barring Raja and Behura, 12 others get bail. Dec 12: CBI files third charge sheet. Names Essar promoters Anshuman, Ravi Ruia, Essar Group director (Strategy and Planning) VikasSaraf, Loop Telecom promoters KiranKhaitan and her husband I P Khaitan as accused. Three companies -- Loop Telecom, Loop Mobile India and Essar Tele Holding also named as accused.2012 Jan 31: SC says filing complaint under the PC Act is a constitutional right and the competent authority should take a decision on giving the sanction within four months. Feb 2: SC cancels 122 licences granted during Rajas tenure. Directs auctioning of licences in 4 months; SC leaves it to the special court to decide on Chidambaram within 2 weeks ; Asks CBI to give status report on probe to CVC, making it a virtual SIT. 11
  13. 13. REFERENCES1. 2971622. tech/article2799000.ece?ref=wl_industry-and-economy_art4. level_38450.html6. fight-indian-licence-cancellation/articleshow/11780435.cms7. tech/article2799000.ece?ref=wl_industry-and-economy_art.9. verdict-licences/1/22122.html11. telecom-firm-telenor-jon-fredrik-baksaas-licences12. india/1/171960.html 12