Idea Cellular and Vodafone India, which are merging, may not be able to cite the ruling in the Airtel-Telenor case as a legal precedent to seek exemption when the Department of Telecommunications demands bank guarantees to cover one-time spectrum charges before approving the deal.
In the Bharti Airtel case, the Supreme Court directed the government to clear its merger with Telenor India without requiring the Sunil Mittal-promoted telco to provide a 1,499 crore bank guarantee. DoT officials said the ruling in the Airtel-Telenor case doesn’t apply in the Vodafone-Idea merger.
“The department will not accept it as a precedent because it’s not intended to be a precedent. The SC has not said ‘in such cases’ so the order is limited to that particular case,” a senior official told ET.
The DoT may ask Vodafone and Idea to provide bank guarantees worth 5,700 crore towards one-time spectrum charges this week. The merging companies may take the legal route if they want a waiver on these dues – 3,600 crore for Vodafone and the rest for Idea.
The one-time spectrum charge is the market price that telcos need to pay for allotted airwaves that they hold in excess of certain thresholds set by the government. Inclusive of these charges, Vodafone and Idea together have dues worth roughly 19,000 crore, ET has reported earlier, largely on account of licence fees and spectrum-related charges, besides some minor penalties.
In line with telecom M&A rules, DoT may ask for 2,500-3,000 crore as liberalisation charges, to cover the difference in the cost of start-up spectrum allocated to the companies and their current market price. While Vodafone India, which won’t exist after the merger, would need to pay up this amount in cash, Idea would have the option of offering a bank guarantee equivalent to its dues, officials add.
However, DoT may not be able to enforce dues related to licence fees and spectrum usage charges because they are computed on the basis of adjusted gross revenue, an issue that has been under dispute for more than a decade and has been stayed. The matter of one-time spectrum charges is also in court, but is also part of the M&A rules.
Airtel had successfully challenged DoT’s demand for bank guarantees for one-time spectrum charges in the Telecom Disputes Settlement and Appellate Tribunal and the Supreme Court upheld the ruling. DoT then cleared the Airtel-Telenor India merger.
Vodafone and Idea will seek a waiver, citing the Airtel-Telenor case, when the demand is made for bank guarantees, an official at one of the merging companies said, asking not to be identified.
Reliance Communications had to clear its dues with DoT before its merger with Sistema Shyam Teleservices was approved.
The DoT earlier this week cleared the increase in foreign direct investment in KM Birla-owned Idea Cellular and indirect investments in two Aditya Birla Group subsidiaries, which were among the last few steps needed before the overall merger is approved.
Officials in the ministry said the Idea-Vodafone merger may go through in a week to 10 days. The two companies have said they expect the transaction to close in June, 15 months after the merger was announced.
The listed new entity, which will be called Vodafone Idea Ltd., has already named current Vodafone India chief operating officer Balesh Sharma as the chief executive officer. Vodafone Idea will become the No. 1 telco in India, with some 63,000 crore as revenue, 430 million subscribers, a 42% customer market share and a 37% revenue market share.
Source: Economic Times