The long-pending merger of Idea Cellular and Vodafone India has received a go-ahead from the department of telecom (DoT). Reports suggest that DoT has asked Idea to give bank guarantees of Rs 3,342 crore - an amount that it owes to the government on account of one-time spectrum charges (OTSC) - and Vodafone for Rs 3,926 crore cash for spectrum that it had bought under administrative mechanism.
It's expected that the two telcos will approach telecom tribunal - TDSAT - to oppose the demand from DoT. OTSC was introduced in 2012, around the time telecom spectrum was liberalised. The OTSC was levied, retrospectively and prospectively, on airwaves sold beyond 4.4 megahertz (MHz) under the administrative regime, which is the method adopted by DoT prior to the current way of auctioning the spectrum. Telcos were asked to pay some Rs 24,000 crore on account of OTSC. Out of the total due of Rs 6,678 crore, Vodafone had paid Rs 2,000 crore in the past.
The demand by DoT is unjustifiable on two grounds. Firstly, the telcos have got stay orders from various high courts against the payment of OTSC to DoT. Since the telcos are still contesting the matter, the demand for spectrum charges is untenable. Then, the apex court has recently overturned DoT's similar demand (of bank guarantees) from Airtel and Telenor India during the acquisition of Telenor by the former. Earlier this month, DoT received another setback when TDSAT directed DoT to release Rs 2,000-crore bank guarantees that Reliance Communications had provided for OTSC charges. With such precedents, the DoT's demand of OTSC from Idea-Vodafone combine doesn't make sense. The telecom ministry had recently sought opinion of ASG (assistant solicitor general) on the Vodafone-Idea merger deal.
After receiving timely approvals from NCLT (National Company Law Tribunal), SEBI (Securities and Exchange Board of India) and CCI (Competition Commission of India), the Vodafone-Idea merger has reached its last approval stage - DoT - where the deal is being carefully scrutinised. Besides OTSC dues, 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. Once approved, Idea-Vodafone will be the largest telecom entity in the country with a combined subscriber base of over 430 million, ahead of the current market leader Airtel.