Is DoT's latest demand from Idea and Vodafone unjust?

As the long-pending merger of Idea Cellular and Vodafone India gets the government nod, we look at the riders the Department of Telecommunications (DoT) has put, and whether they are justified.

The Department of Telecommunications (DoT) on Monday gave a conditional approval to the much-awaited merger of Vodafone India and Idea Cellular. The department has asked Idea Cellular to pay Rs 3,926 crore in cash for Vodafone spectrum.

An additional Rs 3,300 crore is to be paid as bank guarantees towards one-time spectrum charges arising on account of Idea's unliberalised spectrum beyond 4.4MHz. The one-time spectrum charges were introduced in 2012 and are levied on airwaves sold beyond 4.4 megahertz (MHz).

Experts feel that the demand by DoT is unjustified. The telcos have got stay orders from various high courts against the payment of one-time spectrum charges (OTSC) to DoT. Since the telcos are still contesting the matter, the demand for spectrum charges is untenable.

In similar cases, the telecom tribunal TDSAT had ordered DoT to clear the deal without demanding a Rs 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. Earlier this month, in another setback to DoT, TDSAT has asked DoT to release Rs 2,000-crore bank guarantees that Reliance Communications had provided for OTSC charges.

Secondly in the Vodafone-Idea deal, the DoT has also reportedly asked Idea-Vodafone to give up customers in some circles - Kerala, Maharashtra and Gujarat - to bring down their (combined) revenue market share in order to meet statutory requirements. Together, Vodafone Idea will have 37.5% revenue market share and 39% customer market share, or about 430 million subscribers, making them a stronger entity.

The merger agreement signed in 2017 was based on equal rights and equal shareholding between Idea Cellular's promoters and Vodafone Group. As per the deal, Vodafone will own 45.1 per cent in the new company after transferring 4.9 per cent to the Aditya Birla group for Rs 3,874 crore in cash concurrent with completion of the merger. Idea will hold 26 per cent of the combined entity while the rest will be owned by public shareholders.

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, while Balesh Sharma, who is currently the chief operating officer of Vodafone India, has been named chief executive officer.

According to Trai data, with 213.81 million customers, Vodafone enjoys market share of 21.63 per cent. Idea has 19.9 per cent with 197.64 million customers as of December 2017. The new entity is expected to have about 430 million subscribers.

The new entity Vodafone Idea will have the capacity to provide 4G spectrum in all telecom circles of the country. Industry sources said the combined 4G spectrum of both the companies is capable of offering up to 450 megabit per second broadband speed on mobile phones in 12 telecom areas in the country. With the new entity coming in force, Bharti Airtel will lose the tag of India's biggest telecom service provider to the new entity.