BackIdea buys spectrum from Videocon for Rs3,310 crore
Transaction first pure spectrum trading deal since guidelines for it were issued by the telecom department
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New Delhi: Idea Cellular Ltd has agreed to buy 5 Mhz each of spectrum in two circles—Gujarat and Uttar Pradesh (West)—from Videocon Telecommunications Ltd for 3,310 crore in a move that gives the former 4G, and the latter much-needed cash as it seeks to restructure,re-focus and monetize its telecom assets.
The transaction is the first pure spectrum trading agreement since Department of Telecommunications (DoT) issued Guidelines for Trading of Access Spectrum by Access Service Providers (Guidelines) on 12 October.
The new guidelines have led to much speculation regarding consolidation in telecom sector.
Analysts expect that in the next two years, there will be only five-six telcos in the market, from the current 12, on account of the new rules.
The value of the deal, for 5 Mhz of 1,800 Mhz spectrum in each circle, is provisional and could change once the telco completes the necessary due diligence. The deal is also dependent on approval from the DoT.
“The effective date of spectrum trading will not be earlier than 45 days from the date of joint intimation, as defined in the guidelines," said Idea Cellular in a statement. Idea is also taking on deferred payment liabilities of Videocon for the spectrum that was bought in 2012.
Deferred payment liabilities for spectrum refers to the option that winning bidders have that allows them to pay 25% or 33%, of the winning bids, depending on the spectrum band, within 10 days of the auction’s close.
The balance is payable in 10 annual instalments after a moratorium of two years.
“The amount of outstanding ‘Deferred Payment Liability’ after repayment of the first instalment on 1 December 2015 by seller will be ₹ 482.26 crore, and this amount plus interest accrued thereon till the date of closing of transaction (as contemplated in the said agreement) will be reduced from the payment of the aggregate consideration of ₹ 3,310 crore payable for right to use the spectrum," as per the statement.
Idea will have the right to use the spectrum in these circles till December 2032 and plans to offer 4Gtechnology-based communications services.
Prior to this acquisition, Idea had only 2.2 Mhz in Uttar Pradesh (West) and 1.6 Mhz of 1800 Mhz spectrum in Gujarat—far lower than the 5 Mhz of contiguous spectrum needed to offer 4G services.
“With this spectrum trading arrangement, Idea’s 4G (LTE) spectrum footprint will expand to 12 service areas covering over 75% of its current revenue," the statement said. “These 12 circles currently contribute 60% of the Indian telecom industry’s mobility revenues," it added.
Himanshu Kapania, managing director at Idea Cellular, said that the telco will launch its 4G services in 750 towns across its 10 existing 4G circles by the first half of 2016. After this transaction is completed, the company expects to launch 4G services in 12 circles.
A senior Videocon executive, who asked not to be identified, said that the company is looking to sell spectrum in other circles also. Currently, the telcom firm has 5 Mhz of 1800 Mhz spectrum in six circles, including Bihar, Gujarat, Haryana, Madhya Pradesh and both Uttar Pradesh (East and West) circles.
At the time of acquiring the spectrum, in the 2012 auction, the company had said that it was looking at eventually rolling out the FD-LTE (frequency duplex-long-term evolution) standard of 4G technology-based communications services.
Videocon is one of the nine companies that lost its licence in the wake of the February 2012 Supreme Court verdict that cancelled 122 telecom licences and spectrum awarded in 2008 as part of what is now known as the 2G scam. The telco was expected to break even this financial year.
At the end of September, Videocon had 7.9 lakh subscribers, according to the latest data from the Telecom Regulatory Authority of India (Trai).
“It would have been difficult for Videocon to get a higher price than this despite the high demand for spectrum. Idea only needed the spectrum in those two circles. The operators are trying to make do with what they have while also ramping up data capabilities before Reliance Jio launches its services," said a Mumbai-based telecom analyst with a mulitinational brokerage.
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