Idea-Spice deal errs DoT guidelines

Idea-Spice deal errs DoT guidelines

By SiliconIndia   |   Tuesday, 22 July 2008, 05:54 Hrs
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New Delhi/ Mumbai: After the valuation problem, it's the dark clouds of inadequacies in guidelines that cover the Idea and Spice's share purchase agreement, as the Department of Telecommunications (DoT) subjects it to scrutiny. The deal shows errors as per the DoT's merger and acquisition guidelines of April 22, 2008.

The key clause of the DoT guidelines restricts intra-circle mergers (merger between two operators in the same service area) for three years from the date a license is granted. As per the clause, Spice Communications, a GSM service provider, holds licenses for Karnataka and Punjab, while Idea also has licenses for these two circles effective from January 25, 2008. Similarly, Idea Cellular has licenses for the Delhi, Andhra Pradesh, Haryana and Maharashtra circles and Spice also holds licenses in these circles effective from January 25, 2008.

Moreover, another violation can exist in terms of 'substantial equity' clause of a telecom license, according to which, one service provider cannot have more than 10 percent in another in the same circle.

DoT expresses Spice's view of surrendering its license of the circles it has recently acquired, if the deal does not proceed within one year, as reported in Business Standard. But it also clarified that no such provision exist in the agreement and hence the company cannot recover the amount deposited to the department for acquiring the license. However, A V Birla owned Idea maintained that it has not received any query yet but it will comply with all regulations to complete the deal. It also intends to acquire another 20 percent in Spice, along with Telekom Malaysia, the other major shareholder in Spice, for over 1000 crore.

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