Idea-Vodafone Merger: Is The Demand of Rs 3,900 By DoT Is Unjustified?

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Who didn’t foresee any hurdles in the clearances of Vodafone-Idea merger? Apparently, the big-shot move that could usher Vodafone (NASDAQ:VOD) and Idea (NASDAQ:IDEA) as India’s largest telecom operator and remove Bharti Airtel from the top slot, may see a cooling-off period!

According to fresh reports, Vodafone has questioned Government’s demand of Rs 3,900 crore as payment towards non-auctioned spectrum, heating-on with allegations that DoT is seeking nearly 10% more than what should be payable.

 “The merger process between the two companies is well on track and awaits a final clearance pending submission of the required payments,” says Aruna Sundararajan, Telecom Secretary.

But what seems like a further delay, is Vodafone’s tiff with the ministry over the payment demand.

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DoT’s Conditional Nod to Idea Vodafone Merger!

The department gave a nod to the merger, putting forth a new condition. DoT has asked Idea to pay Rs 3,342 crore as bank guarantees, on account of one-time spectrum charges (OTSC) and Vodafone India to pay Rs 3,926 crore for the spectrum accountable under the administrative mechanism.

Vodafone, however, has objected to the payment demand raised by the telecom department. Expectations are that the telco-duo might approach the Telecom Disputes Settlement and Appellate Tribunal to oppose this demand, claiming that there are discrepancies in the calculations. At the same time, DoT officials claim that they won’t flinch before contesting the matter right up to the Supreme Court. Whatever be the aftermath of this tiff, this is sure to delay the entire merger process.

Is DoT Being Unjustifiable?

DoT’s demand seems unjustifiable, believe industry experts, given the fact that the telcos have already got stay orders from various high courts against the payment of OTSC to the DoT. Since the telcos are still stuck in payment issues, the further demand for spectrum charges seems illogical.

The Department of Telecom has rejected the request of recalculating Rs 7,268 crore worth of dues posed by the merging telecom entities, Vodafone India and Idea Cellular. According to DoT, the demand is fine and the telco-duo have to pay up in order to start the merger. The long-pending merger of Idea Cellular and Vodafone India got a green signal from DoT on July 10, subject to the above payment condition.

The Expected Follow-Up

The soon to be merged entity will pocket-in about Rs 80,000 crore of annual revenues and 400 million customers. Post the proposed merger, the Vodafone and Idea, combined, will account for 41% market share by revenues, and 35% market share by subscribers.

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Now with the whole spectrum cap to be paid up by Vodafone and Idea, the bigger question here is that if the entities have to give back some spectrum, will it be refunded?

Apart from the Spectrum Cap Hurdle, Vodafone India and Idea are expected to have a forked strategy for their brands after their merger. Apparently, there will be no jazz around creating a new brand. This will help them ensure that the subscribers don’t get confused. There will be separate brands for urban and rural customers. For the urban customers, post-paid offers will come with a particular branding. The rural customer base will also receive another branding offer.

Given that the proposed merger has already been approved by Competition Commission of India, Sebi and NCLT, further delay may seem like putrid bulletin, garnering no more attention or demand. Hence, the telco-duo are likely to challenge the DoT demand, in telecom tribunal TDSAT and can keep their fingers crossed to get their fair shake, considering that Airtel-Telenor received a similar abatement.

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