Feb 4, 2012

2G: Holistic Risk Management by Telecom Companies Lacking

            The ruling by India’s Supreme Court canceling 122 licences allotted by the Government of India for 2 G Telecommunications spectrum is a classic example of how lack of holistic risk management has led companies to invest large sums amounting to millions of dollars only to come to grief at the hands of judical authorities in India.  Had the companies carried out credible due diligence systemic loopholes would have been evident. First come, first served clause in selling valuable national resource as spectrum is evidently faulty as it entails resorting to chance and is not based on competitive bidding as is the case in most such allotments. That the spectrum was being short sold was obvious given that the total licence fees paid were to the tune of Rs 12386 Crores in 2008. The only risk evaluation done by the companies appears to be that of exposure taken by Indian banks and faith in the Indian companies with which they were having a joint venture. That most of the banks who had taken exposure in the telecom companies were state owned ones whereas the only private bank ICICI bank shunned this sector should evidently demonstrate that there was a concern? What would a holistic risk management in this case would have involved? Some issues are flagged as below-

·         Political Dispensation – State of health of the UPA 1 government, triggers of instability, ministerial equations, informal networks.

·         Political Power Equations – State of coalition and role of various parties and their ministers.

·         Governance Dispensation – In the light of (a) and (b) above how did the governance system work?

·         Regulatory Environment- What was the regulatory environment? How stable or what legacy existed?

·         Indian Companies – What was their financial and market credibility? What experience they had in the telecom sphere? How credible was their leadership?

·         Financial Support. What institutions were willing to provide financial support? What due diligence had they carried out of the proposal? Why some banks did not support the proposal?

·         Unstated Risks. Related to corruption and possibility of disclosures.

·         Project implementation. Risk Management Related to Project Implementation.

·         Competition. Related to competition from other companies.

AWAIT DETAILED PERSPECTIVE HOW RISK MANAGEMENT COULD HAVE AVOIDED EXPOSURE TO COMPANIES.

Article by Same Author