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Updated: Why Telenor Might Want To Merge With TTSL; Overlapping Licenses?


Update: Tata Teleservices (Maharashtra) has clarified to the BSE on the news report, stating that the report relates to its promoter company Tata Teleservices and it is currently not aware of of any such discussions as mentioned in the report. It said:

“With reference to the news item appearing in a leading financial daily titled “Telenor quiet on talk of Merger with Tata Tele”, Tata Teleservices (Maharashtra) Ltd has clarified to BSE that the report relates to Tata Teleservices Limited, which is the Promoter of the Company and the Company is not aware of discussions as mentioned in the press reports.”

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Earlier (Nov 29): Norway based telecom operator, Telenor, is in talks with Tata Teleservices to combine its operations in India, according to a report by Bloomberg. The report cites three people with direct knowledge of the matter as source, and also adds that Japanese telco NTT Docomo, which has a 26% stake in Tata Teleservices, will most likely stay as a shareholder. Note that the Hindu BusinessLine had also suggested that the two could go ahead with an alliance, in July, this year. Telenor has however, declined to comment on any prospective deal, saying that it does not comment on rumors or speculation.

How this makes sense for Telenor

Telenor’s woes started with the Indian Supreme Court cancelling 122 2G licences  issued to nine telecom operators which included licenses for thirteen circles held by Telenor with its joint venture partner Unitech. Telenor was then involved in a long drawn battle with Unitech, and following its decision to exit the partnership, it took part in and won bought 24 blocks of spectrum in 6 circles: Andhra Pradesh, Bihar, Gujarat, Maharashtra, UP East and UP West, paying a total of Rs 4018.28 crore for spectrum.

Telenor, with its new partner, Lakshdeep Investments & Finance Pvt. Ltd (Lakshdeep), a company controlled by Sun Pharma’s Sudhir Valia, still only has access to six circles. In comparison, Tata Teleservices has licences to operate in 19 circles, and at the same time, it did not participate in the 2G auction after its CDMA licenses in Assam, Jammu & Kashmir and the North East were cancelled. Tata Tele also has a a license to operate in Delhi but has not been allotted spectrum in the circle, and it announced that it is shutting down operations in Jammu and Kashmir, North-East and the Assam regions from January 18, 2013 due to lack of spectrum.

So if the rumour of Telenor’s India entity merging with Tata Teleservices, turns out to be true, Telenor, would get access to Tata Teleservices’ existing circles and infrastructure, plus the lucrative Delhi circle (when Tata Tele gets spectrum). Tata Teleservices would get Telenor’s existing subscriber base in 6 circles, where it has won spectrum.

What about Overlapping licenses?

If the acquisition actually takes place, there would be six circles-  Andhra Pradesh, Bihar, Gujarat, Maharashtra, UP East and UP West, where the two telcos will have overlapping licenses. It would be interesting to see if the Government allows the merger, in case both the companies decide to give a go-ahead, and how they deal with the merged licenses.

Note that Idea Cellular, which acquired Spice in 2008, had been fighting a battle in Court with the Department of Telecom, over the transfer of Spice’s licenses. The Delhi High Court had initialy cancelled the transfer of six licences of Spice Communications to Idea Cellular, saying that the company did not abide by the licence and merger guidelines, which do not allow any mobile service operator to own a stake of more than 10% in another operator within the same service area.

The final judgment by the division bench of Delhi High Court on the Idea-Spice merger dispute was pronounced on 13th July, 2012, in which the division bench had confirmed the amalgamation of erstwhile Spice Communication with the Company effective 1st March, 2010. The bench also modified the earlier order of the single judge dated 4th July, 2011 by omitting the direction which had transferred to and vested in the DoT, the six licenses of erstwhile Spice. The bench gave a fresh direction to the DoT to decide on transfer of Spice licenses to Idea, within a period of three months, and had said that the same maybe referred to the TDSAT in case there’s a dispute.

Also, the New Telecom Policy 2012, lists ‘To put in place a liberalized merger and acquisition policy with necessary
thresholds, while ensuring adequate competition’ as an objective.