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- 1. RUNBH
HOOMI 2
2012, COLLEGE O
OF VOCA
ATIONAL STUDIE
ES BBE SO
OCIETY
YO NG MANAGER
OUN MA RS
CASE STUD
DY COM
MPETI
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abxy GR
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shed content is lic
censed under a C
Creative Common
ns License. Copyri
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ahat Khattar for R
Runbhoomi 2012
- 2. Indian Telecom Industry
India is home to over 894 million mobile phone users making it the second largest telecom
industry in the world (Exhibit 1). Like elsewhere, telecommunications in India started as a
state monopoly. In the 1980s, telephone services and postal services came under the
Department of Posts and Telegraphs. In 1985, the government separated the Department of
Post and created the Department of Telecommunications (“DoT”). As part of early reforms,
the government set up two new public sector undertakings: Mahanagar Telephone Nigam
Limited (“MTNL”) and Videsh Sanchar Nigam Limited (“VSNL”). MTNL looked after
telecommunications operations in two megacities, Delhi and Mumbai. VSNL provided
international telecom services in India. DoT continued to provide telecommunications
operations in all regions other than Delhi and Mumbai. It is important to note that under
this regime, telecommunication services were not treated to be a necessity that should be
made available to all people but rather a luxury possible for select few.
Post 1995, the role played by DoT was marginalized when government introduced TRAI
(Telecom Regulatory Authority of India). TRAI’s primary function was to reduce
government’s interference in deciding tariffs and policy making which would promote fair
competition in the highly lucrative Indian telecom industry. Government of India has not left
any stone unturned in making sure that India’s increasing telecommunication need is
catered in most efficient and effective way. This is evident by the fact that India is among
very few nations which support both the GSM (global system for mobile communications)
and CDMA (code‐division multiple access) technologies in the mobile sector.
The regulatory network in India is well diversified (Exhibit 2) and with increasing dynamism
of the telecom industry, the network is becoming more transparent as well as coordinated.
Laws and Regulations in India
India has witnessed several laws and regulations which are still in effect (including The
Indian Telegraph Act, 1885). In the contemporary scenario all our current telecom
associated goods and services come under The Telecom Regulatory Authority of India Act,
1997 which was further amended in 2000. The 2000 amendment served a very important
purpose in completely differentiating the judicial functions of TRAI by setting up of the
TDSAT. The jurisdiction of civil courts has been expressly barred in cases where the TDSAT
has jurisdiction. Also the usage of all types of communication devices along with services
comes under the ambit of The Information Technology Act, 2000 as well.
Spectrum‐ What it is, for who it is and how it is allocated?
The landmark judgement t given by the Honourable Supreme Court of India in 1995 in the
case of Secretary, Ministry of Information and Broadcasting, Govt. of India v. Cricket
Association of Bengal decided that spectrum is actually public property.
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- 3. This judgment has changed the perception of ownership of spectrum in India and the way
the government handles & manages spectrum in today’s scenario.
India is divided into 22 telecoms zones and there are a total 281 zonal licences in the market
(Exhibit 3). According to the telecom policy of India, when a licence is allotted to an
operator some start‐up spectrum is bundled along with it. The International
Telecommunication Union (ITU) at the World Radio Communication Conferences allocates
spectrum frequencies for the use of various countries. Since the mobile communication
technologies provide international roaming facilities, it is essential to allocate spectrum in
the common bands which are being used the world over. Secondly the mobile handsets
which are manufactured are aligned to the GSM 900/1800 bands. If radio frequencies are
allotted in any other bands then the handsets will not be compatible to those bands.
The Wireless Planning and Coordination (WPC) Wing of the Ministry of Communications,
created in 1952, is the National Radio Regulatory Authority responsible for Frequency
Spectrum Management, including licensing and caters for the needs of all wireless users in
the country. The National Frequency Allocation Plan (‘NFAP’) 2000 is the basis on which the
spectrum frequencies are allocated in India.
XYZ Group
XYZ Group is the leading provider of mobile telecommunications and fixed line
communications services in Norway and the leading provider of television and broadcasting
services to consumers and enterprises in the Nordic region. XYZ Group is also a significant
provider of mobile telecommunications services internationally. As at 31 March 2011, XYZ
Group had a total of 120 million consolidated mobile subscriptions. In addition, XYZ had 94
million mobile subscriptions through its minority ownership interest in VimpelCom Ltd. XYZ
Group is a dominant player in Norway with complete support from Norway government
which holds a majority stake in the company.
ABC Limited
ABC Limited Limited is India's second largest real estate investment company, and has
recently claimed to be the largest real estate builder in the country.
The company is based in New Delhi and ranks 1484 in Forbes Global 2000 listing of the top
2000 public companies in the world by Forbes magazine, 32nd in India. Its construction
business includes highways, roads, powerhouses, transmission lines, and it has residential
projects called ABC Limited Cities/ ABC World, in cities like Mumbai, Delhi, Kolkata, Chennai,
Hyderabad, Bangalore, Kochi, Noida,Greater Noida, Agra, Lucknow, Varanasi,Gurgaon, and
Ghaziabad.
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- 4. ABXY Group
ABC Wireless comprises eight Unified Access Services (UAS) licence companies and ABC
Long Distance Communication Services Limited, acquired by ABC Wireless Tamil Nadu
Private Limited on 23 June 2009. These entities were merged into ABC Wireless (Tamil
Nadu) Private Limited with effect from 1 October 2010. The transfer of UAS licences for 21
service areas and the National Long Distance (NLD) and International Long Distance (ILD)
licences in the name of the resultant entity is subject to the approval of the Department of
Telecommunications. The company is hereafter referred to as ABXY, XYZ’s brand in India. On
10 February 2010, XYZ completed the capitalisation of ABXY, bringing the ownership share
in the eight licensee companies to 67.25%. In 2009, ABXY launched services in Andra
Pradesh, Karnataka, Kerala, Tamil Nadu, Bihar, Uttar Pradesh East, Uttar Pradesh West and
Orissa. In May 2010, ABXY launched services in an additional five circles, namely Mumbai,
Maharastra, Gujarat, Kolkata and West Bengal, taking the total population footprint to
approximately 900 million. As at 31 January 2012, ABXY had 38.79 million mobile
subscriptions.
The 2G Spectrum Fallout of India
In 2007‐08, when the government issued 122 new telecom licences, several rules were
violated and bribes were paid to favour certain firms. Several licences were issued to firms
with no prior experience in the telecom sector or were ineligible or had suppressed relevant
facts, CAG report said.The violations cost the exchequer $39 billion in lost revenue, the
auditor said, equivalent to India's defence budget. The telecom ministry's process of issuing
licences "lacked transparency and was undertaken in an arbitrary, unfair and inequitable
manner," the auditor said. Police have accused Andimuthu Raja, the then‐telecom minister,
of having taken bribes from two firms which are one of them being ABC Limited, the local
joint venture of XYZ Group.
The Verdict
On 2nd February 2012, The Supreme Court of India cancelled all 122 telecom licences issued
during A. Raja’s regime highlighting that grant of licences were wholly arbitrary, capricious,
illegal, unconstitutional and contrary to the public interest, violation of doctrine of equality.
The apex court ordered that TRAI would make fresh recommendations on auctioning the 2G
licences.
The Aftermath of the Verdict
The 22 circles in which ABXY Group operates are affected by the verdict and all the licenses
held by the company stands cancelled. This means that the company will have to bid for
fresh licences once TRAI starts bidding process for the same. XYZ Group has already invested
over Rs 6,100 crore in equity and over Rs 8,000 crore in corporate guarantees in India.
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- 5. XYZ has also written down its USD 721 million investments in the Indian joint venture
following Supreme Court’s order. The Norwegian government had stepped into the picture
to bail out scam hit telco XYZ Group. The Norwegian government is likely to invoke clauses
from the India‐Norway Bilateral Investment Treaty (BIT) to protect XYZ’s investment in India.
On corporate front XYZ wants to drop its Indian joint‐venture partner ABC after the
Supreme Court revoked their mobile licences in the country and is seeking a new local
partner, the Norwegian telecoms firm said on Wednesday. Also it has issued a notice to its
Indian partner seeking indemnity and compensation.
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- 6. EXHIB
BIT 1
EXHIB
BIT 2
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C n i a R
- 7. EXHIB
BIT 3
EXHIBIT 4
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C n ight © 2012 Chaahat Khattar for R unbhoomi 2012
a R
- 8. EXHIBIT 5
Key
y Figures of XYZ Group
EXHIBIT 6
ABX
XY‐ India
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n i a R
- 9. References
http://www.ABC.com/en/investor‐relations/reports/q4‐2011
http://www.nishithdesai.com/Research2011/Paper/Telecom%20Paper.pdf
http://en.wikipedia.org/wiki/Communications_in_India
http://articles.economictimes.indiatimes.com/2012‐02‐03/news/31021473_1_crore‐in‐
corporate‐guarantees‐telecom‐licences‐dent‐investor‐confidence
http://articles.timesofindia.indiatimes.com/2012‐02‐
25/telecom/31100289_1_subscriber‐base‐user‐base‐new‐users
http://profit.ndtv.com/News/Article/ABC‐vs‐XYZ‐10‐facts‐about‐the‐face‐off‐298287
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- 10. Questions
1. Should XYZ continue being in India and infuse fresh capital or it should exit India like
other affected international players? (Refer to Exhibit 4 for FDI regulations)
2. Should unaffected telecom players such as Bharti Airtel and Vodafone Essar be
allowed to bid for the scrapped licences? What would be the significance of the
same?
3. What would be priority for Indian market by XYZ Group‐ Value Creation or Value
Capture? You may explain with the help of BCG 2x2 matrix model.
4. Please perform Industry Analysis and PEST Analysis of Indian telecom industry.
5. Suppose you are the current chairman of TRAI. Enlist any 5 basic guidelines you
would put up in the New Telecom Policy and explain. (You may explain on the
grounds of transparency, mergers, permits, bandwidth sharing or any other relevant
point)
6. Discuss the effect of the Supreme Court’s decision on financial statements of XYZ
and ABXY. (Refer to Exhibits 5 & 6)
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