By Elton Gomes
The $23-billion merger deal between Idea Cellular and Vodafone India is slated to get the final nod from the Department of Telecommunications (DoT) provided that both companies pay Rs 7,268 crores in dues concerning spectrum charges demanded by the government. The companies are likely to pay the demand under protest, which means that both companies will challenge the demand in court after the merger is approved by the DoT.
Sources have claimed that the companies have decided to pay first and then challenge the demand, as contesting the payment first could delay the merger, Financial Express reported.
On Wednesday, the DoT rejected both companies’ requests to recalculate their dues. The DoT said the companies will have to pay up to acquire the final seal of approval on the merger. The two operators flagged the amount for some discrepancies and requested the DoT for recalculations. They were awaiting the DoT’s response before deciding to pay up or contest the dues. However, the DoT said that the numbers were fine and that both companies will have to pay to get the final approval.
“The department’s calculations seeking bank guarantees and cash payment from Idea Cellular and Vodafone India, respectively, are correct and have been communicated to the companies,” a senior DoT official told the Economic Times.
Of the Rs 7,268 crore demand raised by the DoT, the amount likely to be challenged is the Rs 3,322 crore levied on Idea for a one-time spectrum charge (OTSC) for spectrum held beyond 4.4 MHz. Idea had previously obtained a stay order on paying this amount. However, as per the merger and acquisition guidelines, in the event of a judicial intervention, companies will have to furnish a bank guarantee of the mentioned amount.
The remaining Rs 3,926 crore has been raised on Vodafone, and might not be challenged as it relates to an entry fee and the auction-determined price of the start-up spectrum of 4.4 MHz.
The DoT gives conditional approval
On July 10, the Economic Times reported that the DoT gave a conditional approval to the largest merger and acquisition deal in the country. The conditional approval was given over a year after the deal was announced in March 2017 and included an upfront payment of Rs 7,268 crore.
The DoT’s conditions have been fortified after two rounds of seeking legal opinion. The merger will lead to the formation of a new entity tentatively titled Vodafone Idea Ltd and will be better equipped to take on competition from Reliance Jio Infocomm and Bharti Airtel. Idea and Vodafone, on their own, have been unable to disrupt Reliance’s plans and have increased their losses. As a combined entity, Vodafone Idea will have 37.5% of the market share and 39% consumer market share, or roughly 440 million subscribers, which might give them the upper hand over Reliance.
Elton Gomes is a staff writer at Qrius
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