DoT may ask Idea to liberalise spectrum held by Vodafone
The department of telecommunications (DoT) is going to ask Idea Cellular to liberalise the administratively-allocated spectrum held by Vodafone, worth about ~45 billion, before giving its nod to the proposed merger of the two companies, sources said. Liberalising of spectrum means allowing to use any technology like thirdgeneration (3G) or 4G services.
According to the merger and acquisition guidelines, an acquirer, which in this case is Idea, will have to liberalise the spectrum held by Vodafone in some circles by paying the market price for 4.4 MHz of airwaves allocated administratively or surrender these to the government. For Idea’s own administered spectrum above 4.4 MHz, it has to give a bank guarantee. Idea could contest the demand for bank guarantee for its own administered spectrum, as the Supreme Court had dismissed a plea of DoT for a one-time spectrum charge on airwaves above 4.4 MHz allocated administratively, in the AirtelTelenor merger. Sources said the total for liberalisation of spectrum could be ~50-60 billion for both firms.
The firms applied for DoT’s merger approval last week, to create the country’s largest telecom operator. The department is evaluating the charges or dues having accrued to the firms and is likely to raise the demand by Wednesday. However, people close to the companies say DoT’s demand for liberalising all of Vodafone’s administered spectrum could be challenged in court. The firm feels that only in circles where the validity of licence will increase, DoT’s demand would be justified.
However, if the demand by DoT is not raised by May 30 or 31, Idea might have to pay whatever is asked for, courts slose in June. “The firm either has to wait for the courts to open, which will delay the merger or pay whatever is demanded,” said a source privy to the proceedings. This will be the first instance of a merger between companies where the acquiree holds administered spectrum. The earlier two approvals involved Airtel-Telenor and Reliance Communications (RCom)-MTS did not have to be paid for liberalisation, as both Telenor and MTS had all auctioned spectrum. RCom was supposed to pay about ~26 billion for liberalising Aircel’s airwaves but the deal fell through.
Apart from the liberalising charge, DoT is not likely to ask for other dues, as most of these are under litigation or stayed by the courts like licence fees, spectrum charges, etc. The DoT will take an undertaking from Idea on taking ownership of the dues when there is a final decision taken by the courts. After the merger, Idea will be the licensee to DoT, as Vodafone will cease to exist.
Idea may have to shell out ~45 billion in cash