India's 2G Licenses Under Judicial Scrutiny

The Delhi High Court in India has sought a response from the federal government on a petition challenging its "first come-first serve" procedure adopted for the allocation of 2G (second-generation) mobile services licenses earlier this year.

The move by the court on Wednesday brings to a head an ongoing dispute between the government and the country's opposition communist parties who allege that the country was swindled of money, after the government decided to offer 2G licenses on a first come-first serve basis, rather than through an auction.

The government has said that it decided on the pricing to attract more players and to offer them a level playing field with existing providers of 2G services.

The Indian government plans to auction 3G licenses in January.

Concern that the government may have under-charged for the 2G license and spectrum to new operators was triggered after an announcement last month by Telenor that it had entered into an agreement with an Indian mobile services start-up that will give it a 60 percent stake in the company.

Telenor said it entered into a definitive agreement to subscribe to new shares in Unitech Wireless for a consideration equivalent to over US$1.07 billion.

In September, Emirates Telecommunications Corporation (Etisalat) announced it had signed a definitive agreement to acquire about 45 percent of Swan Telecom, a recently licensed mobile operator, by subscribing to newly issued shares for a cash consideration of up to $900 million.

After acquiring the licenses at low prices, the start-ups have sold stakes at a whopping profit to foreign companies, according to the left parties.

National licenses were sold for an entry fee of Indian rupees 16.58 billion ($327 million) in January, after the government decided on a combination of fixed payments and revenue sharing with operators.

India's Minister of Communications and IT, A. Raja, has defended the procedure for allocation of licenses saying that it was in line with the country's telecommunications policy and subsequent recommendations by the Telecom Regulatory Authority of India (TRAI).

Telenor and Etisalat were not buying shares from the promoters of Unitech Wireless or Swan, so the promoters were not making money from the licenses, Raja told reporters on Friday in Delhi. The foreign companies were subscribing to newly issued shares and bringing in foreign investment, he added.

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