Idea dials DoT for clarity on M&A norms: Sources

There is no clarification yet from the Department of Telecommunications. They are going to evaluate this case. To some extent it would have taken them by surprise because the policy that was framed in April 2008 is very ambiguous.

The operational part says, “Any permission for a merger shall be accorded only after completion of three years from the effective date of the licenses.” Three years and licenses are the two operative words.

Now in the case of Idea and Spice, there are a few circles wherein Spice currently has operations and Idea has now got a license and it has already paid the license fee. So is the merger applicable there or not? That is the big question.

Idea is saying that in the case of licenses it need not necessarily mean that both the companies should have been there for three years. Spice has been operating for three years. The merger should be applicable even in overlapping areas. But the policy is ambiguous.

Idea has written to the DoT asking them to tell them what the policy is. A) Is the merger applicable in these areas or not? The way we look at the policy, the intent of the policy is only to ensure that new operators don’t make quick money and exit. That is not the case here because Idea and Spice are well-entrenched operators who have been around for 10 years. So they are saying that the way we look at it the merger is applicable.

In case it is not, they have sought the DoTs clarity on whether they can demerge licenses that are in overlapping areas. For example, licenses of Karnataka and Punjab, which in the case of Idea are critical. So, Idea is saying, can we then demerge them into a separate subsidiary and then transfer ownership of this demerged entity. Is that possible, they have asked the DoT for its permission?

They have said that if the DoT thinks that both are not possible, then they are saying that we are willing to surrender our licenses in these two areas but we would think that they are eligible for a refund. That amount would be to the tune of Rs 350 crore.

We understand that Spice has also written a similar letter because there are four circles in which Spice has got licenses in which Idea is also operating. It is an effort that has gone in from Idea and Spice as well.

We spoke to sources in DoT and they said that they are evaluating this letter. We understand that it will take them at least a couple of months because there is this ambiguity in the policy, which will now need to be addressed.

Will government returning the Rs 350 crore license fee?

Returning a license fee is unprecedented. It has never happened in India. It would be very difficult for the government to actually do that. It could set a very difficult precedent.

The second possibility, which is allowing Idea to demerge the two licenses, which are in overlapping areas and then send it off to another promoter again is very tricky because a whole host of new operators the likes of Swan, Datacomm who have got licenses in 21 circles then the DoT if they allow this what they are saying is that all these companies don’t need to meet the three-year lock-in period. They can just get the spectrum, create another entity, demerge these licenses and send it off, which is again very unlikely that the DoT could do.

We will then be left with just scenario wherein they will have to give approval to the merger in the licensing. So, it is a very tricky situation. We understand from DoT sources that they will refer to legal experts within the Department for their opinion and only then will they take a final call on this issue.

We spoke to a top official in the DoT and he said that this could take a few months for the DoT to give a final take because a lot is at stake.

Disclaimer:

This information is sources-based and has not been provided to the stock exchanges.