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Indias 2G verdict wont affect Chinese equipment providers

February 3, 2012

India’s Supreme Court on Thursday cancelled all 122 telecom licenses which former minister A Raja had sanctioned. Deeming the licenses as sold below market prices and costing the exchequer as much as US$36 billion in lost revenues and leading to political gridlock, the government has said that it will form new rules and regulations for telecom licenses within four months, wherein the 122 licenses cancelled will be auctioned for.

The Supreme Court ruling is expected to benefit British based Vodafone, India’s Airtel and Reliance Communications the most. Incumbents in their fields,  industry analysts expect Reliance Telecom which operates on CDMA technology to gain the most especially since number portability is already in play.  As a consequence of Reliance Telecom benefiting, Chinese telecom equipment providers such as Huawei and ZTE which are huge suppliers to the Anil Ambani led group are also expected to benefit.

Finally, with consolidation in the formerly unregulated industry, Chinese telecom players will now have an even playing field and will be able to expand their markets to rural areas. The move is also expected to gradually build confidence globally in India’s  role of the judiciary and broader efforts to crack down on corruption. Chinese companies, including those in the rest of the world have always complained of India’s red-tapism and corruption while doing business in India.

Lastly, although foreign investors globally will be hit badly with the decision to throw them out of the ever-expanding and extremely lucrative Indian telecom market, analysts don’t expect any Chinese investors to be adversely affected by the decision. Due to security regulations imposed, Chinese firms had no exposure to Indian telecom service providers as investors and beyond being involved in supplying telecom equipment and parts to service providers will not be affected.

India at 1.2 billion subscribers has the second largest telecom subscriber base after China. The move is expected to affect at least 79 million subscribers.

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