India's Supreme Court has ruled that 122 mobile licenses awarded across 32 service areas in 2008 should be cancelled, giving a new dimension to investigations into alleged malpractices and corruption in the allotment of the 2G licences that could have cost the country $39 billion.

The ruling will affect the Indian joint ventures of multinational companies including Telenor and Etisalat, which picked up stakes in Indian companies that were awarded the licences.

"We have been unfairly treated as we simply followed the government process we were asked to," Telenor's joint venture in India said.

Irregular allocations of 2G licences and spectrum to some Indian operators in 2008 may have cost the country $39 billion, according to a report by the Comptroller and Auditor General of India (CAG) that was presented to India's parliament in 2010.

The 2G licences were issued at 2001 prices without an auction even though other government agencies, such as the Ministry of Finance, had asked the Department of Telecommunications (DOT) to review the decision, the CAG said.

Some companies were also favoured while awarding the licences, even though the DOT had earlier said it would follow a “first come, first served” policy, it added.

India's Central Bureau of Investigation is investigating the scam. Andimuthu Raja, the country's minister of communications at the time of the controversial allotments, is in jail pending trial.

The decision by the court reflects its bid to bring some order and transparency into India's telecommunications industry which has seen a paralysis in decision making recently, said Kamlesh Bhatia, a principal research analyst at Gartner. There will in the short term be a consolidation and shakeout in the industry, he added.

The top players in India's mobile industry are however unlikely to be affected. Reliance Communications, India's second largest mobile operator, said in a statement that it received all its licences before 2001, and was unaffected by the order of the Supreme Court. Most of the operators affected had delayed in the rollout of their services, and have a very small share of India's mobile subscribers. Uninor, Telenor's joint venture in India, had 36 million subscribers out of 894 million mobile subscribers in the country as on December 31.

The Indian government will now have to auction the licences and spectrum within four months.