Dubai: Etisalat has filed a lawsuit against its former Indian partner in Mumbai after the country's top court withdrew the telco's licences amidst a high-level corruption probe.
The firm announced in a statement on Thursday that it had launched legal proceedings against top executives at DB Group, Vinod Goenka and Shahid Balwa, and another company linked to them, Majestic Infracon Pvt, alleging fraud and misrepresentation.
End of Indian venture
The news comes a day after etisalat announced that it was winding up its joint venture, Etisalat DB (EDB), after India's Sup-reme Court withdrew its mobile licences as part of a wide-ranging corruption probe into the issuance of 2G licences. Etisalat paid an estimated $900 million (Dh3.31 billion) in 2008 for a stake in Swan Telecom.
"Etisalat was induced into its investment in the company that was then Swan Telecom, without any disclosure of the matters that are now alleged by the CBI and Supreme Court," the company said in a statement.
"Etisalat is facing very significant financial losses on its investment in EDB despite having no involvement in the 2G licence application or award process and being entirely innocent of any allegations relating to it.
"Mr. Balwa, Mr. Goenka and Majestic Infracon Pvt Ltd were responsible for Swan at that time and for subsequently marketing the investment opportunity to etisalat."
Etisalat's action comes on the same day that Reliance Infratel, an Indian telecom company, claimed Rs12 billion from the firm's Indian JV, as costs for using its tele-com infrastructure. The Telecom Disputes Settlement and Appellate Tribunal (TDSAT) said the next hearing on the case will take place on March 5, IANS reported.
The messy situation in India is the latest in a long run of bad news for the UAE telecom operator, which has been aggressively expanding into emerging markets in the face of increasing competition in its home country. Last year, it was involved in a failed bid for Zain Telecom in Kuwait, while a proposed bid for a licence in Syria appears to have been shelved in the face of unrest in the country.
"They have found that it is pretty tough going on the international expansion team," Matthew Reed, senior analyst at Informa Media and Telecoms, a research organisation in Dubai, said.
Emerging markets
"They've focused on emerging markets, which on the one hand offer growth prospects but on the other they often contain risks, such as political upheaval, as well as situations such as that in India."
Reed said it was too early to say if etisalat — which had just 1.7 million subscribers in India before deciding to wind up operations — will continue to operate in the country, one of the world's biggest telecom markets.
"At the moment, it looks unlikely. (It looks like) they are going to cut their losses and try to get some compensation," he said.
Omar Maher, an associate at EFG Hermes in Cairo, added that the issue was bigger than just etisalat. The Supreme Court scrapped a total of 122 licences, a move which has already led Bahrain Tele-com to abandon India and threatened the services from Norway's Telenor ASA and Japan's NTT DoCoMo, which also have operations in the country.
"We have to wait and see what the government final decision will be, but the issue is much bigger than just etisalat," Maher said.
A mixed bag
Speaking about etisalat's experience in emerging markets, Maher added that its investments have been a mixed bag, with small ventures in markets including Afghanistan, Sri Lanka, Uzbekistan, Pak-istan and Indonesia, as well as big operations in Egypt and Saudi Arabia.
"We've seen some good investments and some not so good ones," he said, adding that the effect of the India case on etisalat's investors is unlikely to be pronounced.
"It's getting a lot of attention in the media, but from a valuation perspective, it has been negligible," he added.
Etisalat's annual net profit fell 24 per cent to Dh5.8 billion in 2011, due in part to impairments it took relating to Indian affiliate Etisalat DB, which is poised to lose its licence.
Etisalat has reported declining profits in seven of the past eight quarters as earnings from its foreign units fail to make up for declining home revenue.
Outsourcing services
Etisalat announced on Thursday that it was outsourcing its network support services in an effort to cut costs.
In a statement, the company said that it was following a global trend towards moving its business support services to "specialised vendors".
It also said that the move would provide jobs and help Etisalat perform in a competitive market.
"This is particularly important at a time when a competitive market has enabled the degradation of prices in the region, and many telcos around the world, particularly in emerging markets, are facing a downward spiral of reduced revenues," Nasser Bin Obood, acting CEO for Etisalat said.
"As part of this plan, Etisalat will not let go of its UAE national employees, rather the corporation will provide them work under the supervision of international specialised companies, together with all the privileges guaranteed to them by Etisalat," he added.
