Idea: Limited clarity on overlapping licences

The saga over the merger of Spice's operations with Idea Cellular continues to drag. A day after the Delhi High Court imposed a fine of Rs 1 crore on Idea for suppression of facts in the case, there has been some relief for the company on another legal front, with the TDSAT staying the demand of Rs 250 crore by the Department of Telecom (DoT).

When Idea acquired Spice in June 2008, there were six overlapping licences (that is both companies had licence for the same service areas). However, Spice had operations only in Karnataka and Punjab.

After the merger, the options before Idea were to either surrender one of the overlapping licences or merge the licences in those areas.

Despite being given spectrum in five of the six circles, Idea claims that it has not used such spectrum.

But the bone of contention was that, if the licenses had to be surrendered, the company would get nothing in return for the Rs 843 crore that it paid for the overlapping license. The issue becomes more contentious as the licenses came packaged with spectrum as well.

The DoT for its part had never given a merger approval letter, thus further complicating matters. Since an operator in any circle cannot hold more than 10 per cent equity in another, the DoT demanded a fine of Rs 300 crore (including Rs 50 crore for the Punjab licence) in total for the overlapping licences. But the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) has restrained the DoT from collecting the same.

Punjab and Karnataka, where Spice had an active presence, are important areas of operation for Idea. The company derives about 13.6 per cent of its gross revenues from these circles. The company has the second highest revenue market share in Punjab and is a key player in Karnataka, what with the lucrative Bangalore city too coming under this service area.

Idea also has access to the cost-efficient 900 MHz spectrum as well in these geographic areas, which gives it significant competitive advantage to take on larger peers.

What is more important is that if operations are curtailed or restrained in anyway in these circles, Idea would stand to lose out on revenues, as it has a quality subscriber base, what with 93 per cent of its subscribers being active (recharge and use connection regularly).

With limited regulatory clarity on surrender of licences in case of overlap and also no precedents to go by, the dispute may well take considerable time to be settled.

Published on July 06, 2011

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