India roundup: Vodafone tax dispute; spectrum auction shenanigans

22 Oct 2014

UK-backed cellco Vodafone India and the Indian government have extended the deadline to find a mutually acceptable third arbitrator to help resolve their ongoing tax dispute, valued at INR200 billion (USD3.27 billion), by a month having passed their previous 17 October deadline without reaching an agreement. The Economic Times writes that this is the third time the duo have had to push back the target date to finalise a third arbitrator and if they fail to reach a decision by the next deadline, Vodafone has said it reserves the right to take the issue to the International Court of Justice to resolve the matter. The dispute surrounds the UK group’s acquisition of Vodafone India (then Hutchison Essar), with the Indian authorities attempting to impose tax liability on the transaction. The Supreme Court ruled in favour of Vodafone in January 2012, only for the Indian government to amend tax laws with retrospective effect.

Meanwhile the GSM Association (GSMA) has put pressure on the Indian government to accept the Telecom Regulatory Authority of India’s (TRAI’s) proposal to ensure that there is sufficient spectrum available prior to the next auction. GSMA’s chief regulatory officer Tom Phillips was quoted as saying: ‘Next year’s spectrum auction, if handled badly, could have damaging consequences for India’s mobile industry. [The] failure of existing operators to retain their current spectrum, which is due to be relicensed as part of the auction process would not only jeopardise their businesses but also threaten continuity of mobile services.’ In order to ensure that enough spectrum is made available, the GSMA urged the government to hasten the migration of non-mobile users from the 2100MHz band, in particular the defence ministry. In its recommendations, the TRAI pointed out that the failure to add frequencies to the auction pool would create artificial scarcity and spark fierce bidding between players desperate to win back their airwaves. Whilst this situation would drive up government revenues from the spectrum, it would have a net negative impact on the industry, limiting the capital available for operators to invest in expanding and improving their services.

In a related development the TRAI has sought more information on the availability of 3G spectrum from the Department of Telecommunications (DoT). The TRAI said it would not be in a position to proceed with the consultation process for the auction until it was furnished with full details of the availability of 2100MHz spectrum. The TRAI also suggested that the DoT offer to migrate the defence ministry, which is occupying the 2100MHz spectrum not currently used for commercial mobile services, to the 1900MHz band.