The cancellation of 122 second-generation (2G) mobile licenses issued after January 2008 in India could see affected companies take legal action, industry sources said.

Operators affected by the judgment today (2 February) from the Supreme Court include the Telenor/ Unitech Wireless Unitel joint venture (all 22 licenses), Sistema Shyam Teleservices Limited (21), Etisalat (15), Idea Cellular (6), Swan Telecom (13), Loop Telecom (21), Videocon (21) and Tata Teleservices (3), said Fitch Ratings.

While bankers and analysts said that some of the affected players would be forced to close operations or re-bid for licenses, most operators told this news service that it is too premature to offer any detailed plan of action as they have yet to study the full judgment and its ramifications.

A Sistema Shyam TeleServices spokesperson said that it does reserve the right to protect its interests and could use all available judicial remedies. Russia-based AFK Sistema (AFKS:RM) holds a 73.71% controlling stake in the joint venture, while India-based Shyam Group has a 23.79% stake. Other shareholders include the Russian government.

Likewise in a statement issued by Etisalat, the company said that it could exercise its right to a review of the Supreme Court’s decision after going through the judgment and its ramifications on their operations. Companies can file for a review of the Supreme Court's order.

The Indian Supreme Court statement on the cancelation of the telecom licenses follows an investigation into the corrupt practices surrounding the granting of the 2G licenses. The-then telecom minister Andimuthu Raja had issued licenses, showing "special favours". Now the government wants canceled licenses to be auctioned and sold at market rates.

According to media reports, the 2G licenses were issued for INR 16.51bn, on which the government auditor has assumed a loss of revenue of up to INR 1.76trn.

At a time when the UK and the US are stepping up anticorruption efforts with the introduction of the UK Bribery Act of 2010 and Foreign Corrupt Practices Act (FCPA), the Supreme Court judgment sends out positive signals that corruption will be dealt with strongly, noted a lawyer working with global companies.

However, despite public perceptions, today's Supreme Court ruling is related to a procedural issue and not a criminal one, Allen & Overy partner Tom Levine stressed. The court did not deliver a criminal finding but found that the licenses were not awarded in the required transparent manner. That the outcome will not affect ongoing criminal investigations was the judgment's final word, he said.

The operators could put in a request for reconsideration to the Supreme Court, Levine said, for which the court would need a good reason. He said he thought this was unlikely and instead the telcos are more likely to argue for a process, which ensures that the allocation of the licenses are just, including which entities are awarded the license.

Foreign shareholders cry foul

The 2G scam has been viewed as one wherein Indian companies tried to make a fast buck by selling stakes to overseas telecom players at a high valuation, and not in keeping with the price they paid for the 2G spectrum.

Shocked by the verdict, Uninor said that it has been penalised for faults the court found in the government process.

Etisalat pointed out that the Supreme Court decision was in reference to events that took place in January 2008, well before the Abu Dhabi-listed telecommunications firm invested into Swan in December 2008. Etisalat had no knowledge of what occurred in the license application process and was not involved. The license applications were entirely conducted by the Indian owners and their associates, who subsequently marketed the Swan investment opportunity to Etisalat through a well-known international investment bank, Etisalat said.

Key to the ruling is the issue of fairness and the prospect of a ransom situation, Levine said. Operators which have invested in the license and infrastructure and run operations on which they rely, are faced with a court decision that will reallocate the licenses and force them to bid again under new circumstances, he noted. "They are bidding with their hand in a vice," he said.

Etisalat bought 45% in Swan, now called Etisalat DB Telecom for USD 900m in December 2008. Likewise, Telenor spent around USD 1.07bn to buy a 60% interest in Unitech Wireless, now called Uninor, in 2008.

Russia’s MTS, initially bought 10% in Shyam Telelink for USD 11.4m in September 2007 and then raised its stake by another 41% later in the year for a total spend of USD 58.1m. NTT DoCoMo bought 26% stake in Tata Teleservices (TTSL) for USD 2.7bn in 2008, subsequently investing a further USD 179m last year through a rights issue.

The Supreme Court is being very activist on the one hand, deciding that the licenses should be canceled and on the other, that the individuals that benefited from selling them pay money to the Supreme Court and the Prime Minister's Relief Fund, Levine noted.

The cancelation of the licenses issued by the-then telecoms minister in 2008 has sent negative signals to the international investment community and could affect foreign direct investment, bankers pointed out. Lack of clarity and the sudden change in the business environment does not bode well for India, said a legal advisor.

Bundeep Singh Rangar, chairman at a London-based advisory firm, Indus View, noted that although it was a bitter pill to digest in the short term, the verdict is favourable to foreign direct investment in the long run given that it is "cleaning out the system". Rangar advises foreign companies doing business in India.

"The Indian judicial system is demonstrating that they are not taking the issue of corruption lightly. I don't see this as being telco specific, rather as an overall position on corruption following the high profile cases of the 2G licencs scandal and the Commonwealth Games," Rangar said.

Consolidation or exit

The Indian telecom sector could see consolidation take place in the medium term relating to spectrum as large, established players could choose to acquire additional spectrum by way of the auction process expected to be conducted in four months' time, noted CARE Ratings' Assistant General Manager, Gaurav Dixit.

Consolidation is the theme of the hour in a market of 13 players, said Rangar. He envisaged that new entrants are now more likely to exit the market via M&A, but are not in the best negotiating position since it is unclear what will happen after four months, or what kind of penalties might be applied.

A Telenor spokesperson, however, said that it is not looking to exit in the next four months, not until the next auction. According to the verdict, 22 of its licenses have been canceled, and it has yet to take a view as to whether it will participate in the new auction.

M&A in the true sense of the word is unlikely, given that it would make no sense to acquire a company or a stake in a company that does not have any licenses and is liable to payment of penalties, pointed out Dixit.

In the interim, so as not to affect mobile subscribers, the court stated that the licenses can continue to be operational for the next four months, until the Telecom Regulatory Authority of India (TRAI) puts forth its recommendations to the Department of Telecommunications (DoT) for the issuance of spectrum.

However, the remaining operators do not have the capacity to take on the traffic currently managed by the affected licenses, Levine noted. The regulator has until 2 April 2012 to make a recommendation to the government on how the reallocation is done, he said. The licenses will be canceled on 2 June.

The impact on the large players will be minimal, Dixit said, citing Tata Teleservices. Three of its licenses have been canceled and these contribute just about 2.5%-3% to revenues. More important, as these three circles are loss-making, contributing to more than 3% of the bottom line, the cancelation of these licenses could boost the company's profitability.

It is understood that Idea Cellular will not see much of an impact either. Though seven of its operating licenses have been impacted, these account for just 6% of base revenue. Once again these are loss-making circles, it was pointed out.

While positive for the larger players, the likes of Bharti Airtel, Vodafone and Reliance Communications, the Supreme Court verdict will hurt many new players such as Telenor/Unitech, Etisalat and Sistema Shyam. It could also hamper fresh investment into the Indian telecom sector, bankers pointed out.

Rangar however, seemed confident that it will be possible for affected companies to mitigate the impact of this decision by gaining credit for what they spent on licenses, or see their Indian partners pay some kind of a penalty.

It is unclear whether some players would have the stomach or resources to invest more to defend businesses which are still in start-up mode, especially when they are operating in a highly competitive market with more than a dozen players, Fitch Ratings pointed out. The three largest players in the market - Bharti Airtel, Vodafone and Reliance Communications - are likely to benefit from any reduction in competition, it stated.

Headline inflation in India fell to 7.47% in December, its lowest in two years since 7.15% in December 2009.

The inflation drop has been accredited to the ease of inflation throughout the food industry. Food articles such as vegetables and wheat have slowed to a lower growth rate than in previous months.

In contrast, inflation throughout the manufacturing industry has remained relatively steady.

As inflation pressure continues throughout the manufacturing industry, the question remains in the Reserve Bank as to whether or not to lower rates.

Inflation fluctuation remains a major political topic in India because of its effect on the country’s purchasing power.

This drop in inflation has created positive news for the government in light of the upcoming national elections. Even after this drop, inflation in India remains the highest amongst the other BRIC nations - Brazil, Russia, and China.

Less movement in rates throughout the manufacturing industry coupled with holding the highest inflation rates has given reason for the Reserve Bank to continue to hold off decreasing rates.

Speculation continues as to if and when the Reserve Bank will choose to cut interest rates after they chose to hold of lowering them in their recent review on January 17th. The general consensus appears to be that rates will be lowered in time, after an extended watch of the markets.

Prime Minister Pranab Mukherjee has also alluded to upcoming changes to help bolster the appearance of a deceleration of the Indian economy.

Auto Expo 2012 in New Delhi is the largest Indian automobile fair. The 11th edition of the Delhi Auto Expo started from 5th January and went on till the 11th January. Auto Expo was a grand event where many national and international automobile manufacturers unveiled their new models. Auto Expo 2012 had special focus and emphasis on technological innovations in the areas of safety, environment and fuel efficiency.

About 1,500 exhibitors and 50 global brands from 24 countries participated in the show and witnessed 58 new launches.

Traditionally, Auto Expo has not just highlighted the Indian auto industry’s new-found confidence, but also provided insight into how global majors see the Indian market evolving.

This year’s motor show saw a large number of sports utility vehicle (SUV) and multi-purpose vehicle (MPV) types announced. Compact cars are currently the mainstream model type in the Indian market, yet in response to diversifying needs of vehicle buyers, automakers are looking to enhance their line ups with highly versatile products.

India’s largest auto manufacturer in passenger auto segment, Maruti Suzuki, has jumped onto the MPV band wagon. They launched the Ertiga, a compact and versatile MPV with seven seats in a three-row configuration. Maruti Suzuki also unveiled a new compact SUV concept called the XA Alpha.

Indian maker Bajaj Auto used Auto Expo 2012 for the first unveiling of its ultra low-cost RE60. For eight long decades, Bajaj Auto has been dominating the two-wheeler and three-wheeler space in the country, and this is the first time that they are entering into the already crowded car market in India.

Ford India, which has had a taste of the mass market with the success of the Figo small car, will join the race with its own compact SUV.

The company showed off a swank design concept of the EcoSport, and called it the urban SUV.

Mahindra and Mahindra launched the world's first hydrogen-fuel-run three-wheeler, HyAlfa, that will ply in Delhi soon. The vehicle cost $1 million in development over a span of three years.

Tata Motors showcased a new version of their Tata Nano CNG. The home grown car maker giant Tata Motors has decided to count on the diesel version of its small car Nano, in order to make the best use of its unprecedented achievement as the world's cheapest vehicle.

Auto Expo 2012 also witnessed some new high-profile bike launches. One of the hugely popular super bike brands that formally entered the Indian market after unveils at the expo was Triumph.

Triumph has brought in a portfolio of seven bikes chosen from four of its prominent model families, all including a two year and unlimited mileage warranty. The line-up includes the Modern Classic - Bonneville, the iconic naked sports bikes Speed Triple and Street Triple, the off-roader Tiger 800XC, Storm power cruiser, the Rocket III Roadster, and the super sports bike Daytona 675.

India remains a market dominated by small cars as consumers follow the familiar path of upgrading from push-bikes, to motorbikes and to cars, with most new buyers opting for affordable models at the bottom of the market.