A few weeks ago I wrote an article for Wireless Intelligence highlighting how the new Indian operators that were awarded GSM licences two years ago are struggling to establish a foothold in the country’s fiercely competitive telecoms market. Little did I know that these licensees – tiny in the context of India’s vast mobile market – would soon be at the centre of a political scandal that has already led to the resignations of senior government ministers and has left India’s Prime Minister, Manmohan Singh, fighting for his political future.

The story runs likes this. In 2008, India’s Department of Telecoms (DoT) issued eight new GSM licences – two to existing CDMA players Reliance Communications (R-Com) and Tata Teleservices Ltd (TTSL), and a further six to new market entrants. In most cases, the licences covered all of India’s 23 telecom service areas. These licences were allocated on a ‘first come, first served’ basis without a formal auction process, using an earlier 2001 issue as a guide price for fees. As a consequence, a licence to operate in the world’s second most populous market could be had for a relative pittance – around US$150 million if reports are to be believed (official figures are conspicuous by their absence). Moreover, many of these newly-licensed operators were then able to attract multi-billion dollar investments from international operators keen to enter India.

India’s Central Bureau of Investigation (CBI) began quietly investigating the matter over a year ago, but it was a report published earlier this month by India’s chief auditor that brought the story into the public consciousness. Implicating both the DoT and telecom regulator TRAI, the Comptroller and Auditor General of India (CAG) said the decision to sell-off the 2G spectrum on the cheap may have cost the country as much as US$40 billion in lost revenue. Such an eye-watering figure was soon seized upon by political opponents and promptly led to the resignation of India’s telecoms minister (and DoT chair) A Raja. Both Singh – elected on an anti-corruption ticket – and TRAI have now pledged to investigate the “serious irregularities” raised by CAG and take appropriate action. It could be too late for either of them to salvage their reputations.

Behind the bluster lie deeper questions about India’s regulatory framework, which is ineffectual at best and dysfunctional at worst. Licensing can be tricky at the best of times and is no doubt doubly complex in a crowded market divided across multiple licensing zones. This was evident in the long-delayed 3G auctions that finally completed earlier this year, which resulted in a lucrative payday for the government but led to no single operator being able to offer 3G services on a nationwide basis. Furthermore, tight regulations around foreign ownership and M&A have prevented operators from easing financial pressure via market consolidation.

But the latest scandal could mean the current framework grinding to a halt altogether as the government attempts to revoke the licences of those deemed to have illegally acquired them. This will mean lengthy legal battles that could potentially paralyse the regulatory process for years to come. Telenor, for example, would argue that it bought into the market after its local partner (Unitech) had already acquired the contentious licence, and that it has invested heavily in India since; the Norwegians would therefore present a solid legal challenge to any punitive measures the government takes against its fledgling Indian operation.

Within this nightmare scenario is an opportunity. With the DoT and TRAI in the public doghouse, the government has enough political currency to rebuild the regulatory system from the ground-up, creating a streamlined regime that will support rather than hinder market development. Such changes will be vital if the world’s most exciting and fastest-growing mobile market is to realise its potential.

Matt Ablott

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members