The Idea-Videocon spectrum deal failed, with Bharti Airtel agreeing to buy it in six circles for Rs 4,428 crore. Here's why Idea Cellular hung up.
Aditya Birla’s telecom company Idea Cellular and Venugopal Dhoot-led Videocon on March 16 announced that the two companies have decided to end talks for the latter’s spectrum in Gujarat and Uttar Pradesh (West). Idea Cellular had agreed to spend Rs 3,310 crore.
However, Videocon has found a new suitor in Bharti Airtel who has agreed to buy Videocon’s spectrum in six circles for Rs 4,428 crore, more than Rs 1,118 crore than the deal with Idea.
According to a report in the Economic Times (ET), there were a couple of reasons that led to the deal's failure. One of the reasons was Videocon Telecom's wish to exit the GSM business by March.
Idea Cellular has been against buying Videocon's spectrum in all the six circles after it already had bought radiowaves in in Gujarat and Uttar Pradesh, The company wasn't keen to buy into the bandwidth in UP-East, Bihar, Haryana and Madhya Pradesh, the report says. Videocon found a buyer instead for all its six circles in Bharti Airtel.
Over and above this, the deal would have warranted a levy of service tax to be paid by Idea, the report says, after Finance Minister Arun Jaitley declared that spectrum trading wouldn't be treated as intangible goods and hence, would be liable to service tax.
In his Budget 2016 speech, Jaitley said, "I propose to amend the Finance Act, 1994 so as to declare assignment by the Government of the right to use the radio-frequency spectrum and its subsequent transfers a service, to make it clear that assignment of right to use the spectrum is a service leviable to service tax and not sale of intangible goods".
This would have overburdened Idea's already stressed financials, the report says.
Videocon had acquired spectrum in 1800 MHz band, known as 2G spectrum, in Gujarat and UP (West) for a total of Rs 1,329 crore in November 2012 and made an upfront payment of Rs 438.57 crore to the government.
The six circles are Bihar, Haryana, Madhya Pradesh, UP (East), UP (West) and Gujarat.
As per the Cellular Operators Association of India (COAI), Videocon lost nearly 18,000 subscribers in the month of February 2016 and its total customer base stood at 67,27 lakh as against Airtel’s 24.86 crore—the largest in India with a market share of 32.35%.
Naturally, the stock price of Videocon has jumped nearly 17% on the Bombay Stock Exchange’s (BSE) Sensex. Meanwhile, the shares of Bharti Airtel rose up 3.64% in the early trade to Rs 352.00 on the stock exchange. At 1308 hours, the shares of Bharti Airtel were trading up 2.24% lower than the day's high or Rs 7.60 at Rs 347.25 per scrip on the BSE.
Bharti, in a statement, said, "Bharti Airtel has entered into a definitive agreement with Videocon Telecommunications Ltd (VTL) to acquire, at an aggregate consideration of Rs 4,428 crore, rights to use 2x5 MHz spectrum in 1,800 MHz band for six circles."
Idea Cellular, in November last year, had announced to buy airwaves held by Videocon in Gujarat and UP (West) for Rs 3,310 crore, which was billed as the first spectrum trading deal of the country.
In October last year, Economic Times had said that Videocon Industries Ltd planned to demerge its telecom business into six new group companies based on circles that the company was operating its business in.
(With Agency Inputs)
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