Idea Cellular Must Backstop $2-Billion Spectrum Liabilities For Vodafone Merger

The Department of Telecommunications wants Idea Cellular Ltd. to provide bank guarantees and payments worth more than Rs 13,600 crore (about $2 billion) for Vodafone India Ltd.’s spectrum payments to approve their merger to create India’s largest telecom operator.

The merged entity will also have to reduce its market share based on adjusted gross revenue in Kerala, Maharashtra and Gujarat to under 50 percent within one year from date of approval, according to the department’s letter to Idea Cellular. BloombergQuint has obtained a copy of the letter.

The conditions have to be satisfied before the final nod comes through, newswire PTI reported quoting an unnamed senior official. Idea Cellular declined to comment on BloombergQuint’s emailed queries.

Here are the conditions set by the department:

• Idea Cellular will replace the bank guarantees submitted by Vodafone Mobile Services Ltd. and Vodafone India Ltd. towards annual instalments amounting to Rs 2,005 crore, Rs 2,937 crore and Rs 1,484 crore for spectrum won in 2014, 2015 and 2016, respectively.
• Idea Cellular will have to submit bank guarantees towards one-time spectrum charges worth Rs 3,322 crore (Rs 2,895 crore for Idea Cellular and Rs 427 crore for Vodafone India).
• Idea Cellular will need to pay Rs 3,926 crore differential between the entry fee paid and the market determined price of 4.4 megahertz spectrum assigned to Vodafone on a pro-rata basis.
• If the administratively-held spectrum by Vodafone India is shifted to Idea Cellular once proceedings at the telecom tribunal are over, then the Aditya Birla Group company will be liable to pay market-determined rates of that spectrum on a pro-rata basis for the remaining period of the validity.
• Idea Cellular has to ensure that the right to use Vodafone’s spectrum beyond 4.4 MHz is governed by restricted use of technology provisioned in the erstwhile unified access licence regime.
• Idea Cellular will be responsible for clearance of all demands raised by any wing of the DoT.
• Idea Cellular will have to make an undertaking to pay all demands including past unpaid, subject to outcome of the judicial process.
• The merged entity to reduce market share based on adjusted gross revenue in Kerala, Maharashtra and Gujarat to under 50 percent within one year from date of approval.
• The resultant entity to reduce market share based on subscriber base in Gujarat, Haryana, Kerala, Madhya Pradesh and Uttar Pradesh (West) within a year of approval.
• There will be a lock-in of shares held by Vodafone in Idea Cellular.

The combined operations of Idea and Vodafone will create the country’s largest telecom operator worth over $23 billion (or over Rs 1.5 lakh crore), with a 35 percent market share and a subscriber base of around 430 million.

The merger is expected to provide a breather to the two debt-ridden firms from cut-throat competition in the market where margins have hit rock bottom with free voice calls. The merged entity will have the capacity to provide 4G spectrum in all telecom circles.