Photo: Reuters.
Photo: Reuters.

DoT raises ₹7,200 crore demand to approve Vodafone-Idea merger

While 3,900 crore cash is for transfer of spectrum from Vodafone to Idea for airwaves up to 4.4 MHz, the bank guarantee of 3,300 crore is for airwaves beyond 4.4 MHz

New Delhi: The Department of Telecommunications (DoT) has demanded 3,900 crore in cash and 3,300 crore in bank guarantees towards one-time spectrum charges to clear the merger of Vodafone India and Idea Cellular, a senior DoT official said.

While 3,900 crore cash is for transfer of spectrum from Vodafone to Idea for airwaves up to 4.4 MHz, the bank guarantee of 3,300 crore is for airwaves beyond 4.4 MHz.

“The letter has been issued to Idea Cellular.... Apart from these two demands, Vodafone India’s existing bank guarantees currently held by DoT for deferred spectrum payments will have to be replaced by Idea Cellular, and Vodafone India will also need to provide undertakings to the DoT on account of payments that are under judicial intervention from its past cases," the official cited above said, requesting anonymity.

Once these demands are met, DoT will give its final approval for the merger. The two companies have already received approval from the National Company Law Tribunal (NCLT), the Competition Commission of India and the Securities and Exchange Board of India.

One-time spectrum charges are payable by companies which want to convert their administered spectrum or spectrum not bought in an auction to liberalized or auctioned spectrum. Auctioned spectrum can be deployed flexibly for any purpose, unlike administered spectrum.

Under the DoT’s merger and acquisition guidelines, if a transferor (Vodafone) holds a part of the spectrum, which (4.4 MHz/2.5 MHz) has been assigned against the entry fee paid, the transferee (Idea), i.e. the resultant merged entity, at the time of merger, shall pay to the government, the differential between the entry fee and the market-determined price of spectrum from the date of approval of such arrangements by NCLT on a pro-rata basis for the remaining period of validity of the licence.

Meanwhile, in the event of judicial intervention in respect of demands raised for one-time spectrum charges in respect of spectrum holding beyond 4.4 MHz, a bank guarantee for an amount equal to the demand raised by DoT for one-time spectrum charges shall be submitted by transferee (Idea), pending final outcome of the case.

On Idea’s part, it can approach the Telecom Disputes Settlement and Appellate Tribunal to seek a stay of the DoT demand for bank guarantee.

In a similar case, the tribunal had ordered DoT to clear the deal without demanding a 1,499-crore bank guarantee from Bharti Airtel Ltd for its acquisition of Telenor India. DoT had then approached the apex court, which dismissed its petition in May.

“Idea can move TDSAT against the demand for bank guarantee, but the cash payment worth 3,900 crore will have to be made, that cannot be contested in court," the DoT official quoted earlier said.

Any delay in meeting these conditions will also delay the benefits in synergies that Vodafone and Idea are banking on, besides the risk of losing subscribers and revenue to rival telcos.

The merger of Idea and Vodafone will create the world’s second-largest and India’s largest telecom firm. It is aimed at dominating a market that Mukesh Ambani’s Reliance Jio Infocomm Ltd had disrupted with free voice calls and low data tariffs.

In March, Vodafone India and Idea Cellular outlined the key leadership team which will head the merged entity. Aditya Birla Group chairman Kumar Mangalam Birla will be the non-executive chairman of the Vodafone-Idea combine. Balesh Sharma, who is currently the chief operating officer of Vodafone India, has been named chief executive officer.

Emails sent to Vodafone and Idea seeking details of the demand remained unanswered till press time.

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