New 2G licence application norm baffles telcos

Certain aspects of the information memorandum issued by the Department of telecommunications on 2G spectrum auction have confounded the industry. There is a lack of clarity on who can participate in the upcoming 2G auction scheduled to begin on the 12th November 2012, reports Malvika Jain of CNBC-TV18.

The information memorandum requires applicant companies to certify that they are not subject of court proceedings which may impact their business or ability to bid. The certificate to be submitted by 2G auction applicants must read as follows – "I hereby certify that neither the applicant nor any of its associated licensees are the subject of criminal or civil proceedings that could be expected to adversely affect its business or its ability to bid in the auction."
This raises a question mark on eligibility of companies like Unitech Wireless, Loop Telecom, Essar Teleholdings, Reliance ADAG, Swan Telecom and DB Realty who are accused in the 2G spectrum scam and even those fighting at the Company Law Board and other forums.
There are also doubts over 100%-foreign-owned bidder participation. It appears that foreign companies will need to find an Indian partner before they bid in the 2G auction. Earlier, in case of 3G auctions foreign companies like Qualcomm where able to bid as 100% foreign companies. However, later there was delay due to confusion. It appears that the government wants to avoid similar confusion in case of the 2G auctions.
Taking lessons from the billion-dollar 2G spectrum scam, the information memorandum also attempts to strengthen the much talked about "Substantial Equity" Clause of the UASL guidelines. Currently, existing telcos can hold up to 10% equity stake in an applicant company.
However, the information memorandum proposes that, "a promoter company/ legal person cannot have stakes in more than one licensee company for the same service area." This implies that promoters cannot hold even 10% in a second licensee. This could impact plans of a lot of existing telcos not just those whose licenses have been quashed by the Supreme Court.
In all likelihood, the industry will seek clarity on all the above points from the government given that a plain reading of the information memorandum seems to suggest 2G accused, 100% foreign companies and some of existing telecom promoter company may not participate in the 2G auctions.