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Uncertainty and the law

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 licences revoked.

Essentially what has happened is that the courts have said that looking back at 2007, in hindsight, India could have got more for the licences by auctioning them out and that they do not believe arguments put forward by TRAI, the telecoms regulator or the commissioner.

The state had lost out and so all that has happened since then will be cancelled and everything will start again.

Those arguments were that had an open auction been conducted, the newcomers would have fought for the licences and paid through the roof. The licence 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 licences would not have arisen and the consumer would have lost out.

Looking at 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 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 if that contract will be valid, or if they will be sued at a later date for complying with it.

In India, one could argue that those who received a licence in good faith should not be penalised and only those who conspired with the regulator should feel the full wrath of the law.

A similar case happened in Thailand starting back in 2003. The government of Thaksin Shinawatra amended the telecom concessions so that a new excise tax would be deducted from calculations for revenue share.

This was later deemed illegal, an excise tax being, by definition, a tax on luxury goods, and telecommunications is not a luxury. This was revoked by the military appointed Surayud Chulanont government in 2007 and all the telcos were asked to pay up.

The telcos claimed that they were only following government policy. Many academics argued that while the smaller operators could claim compliance with the law, market leader AIS could not use the same argument as the majority shareholders at the time were the Prime Minister’s wife and children. AIS’ concession holder, state owned TOT was claiming around $2.8 billion in lost income alone.

In October last year, just months after Thaksin Shinawatra’s sister Yingluck became Prime Minister, TOT dropped the case.

Both cases highlight the need for a proper, clean, independent and unpoliticized regulatory regime if a country is to secure the long-term investment it needs to invest in the communications infrastructure needed for a twenty-first century connected society.