Govt blocks Etisalat-Allianz merger

The government has blocked the proposed merger between Etisalat DB Telecom (earlier Swan) and Allianz Infratech citing the three-year lock-in requirement under the current rules.

The two players, which entered the local telecom market as recently as last year, had moved the Department of Telecommunications (DoT) in April this year seeking approval for a merger.

The DoT has informed the two vide a letter dated October 7, that the merger “cannot be permitted before the lock-in period of three years”.

Etisalat DB Telecom holds licences across 13 circles (Andhra Pradesh, Delhi, Gujarat, Haryana, Karnataka, Kerala, Maharashtra, Mumbai, Punjab, Rajasthan, Tamil Nadu, Uttar Pradesh East and Uttar Pradesh West).

Allianz, on its part, has licences for two significant circles — Madhya Pradesh and Bihar.
Had they been allowed to merge, the combined entity would have had a far greater reach in India’s telecom market, where the mobile subscriber base is growing by 14-15 million a month and teledensity is yet to touch 50 per cent.

The merger looked in doubt when in July this year the DoT imposed a three-year lock-in for sale of promoter’s equity in telecom service providers (or unified access service licencees). However, it was not clear from the government statement whether the series of telcos which were given licences in 2008, including Etisalat (Swan) and Allianz Infratech, would fall under the new guideline.

The DoT decision followed the widespread criticism communications minister A Raja received over stake sale by new telecom licencees such as Unitech and Swan to foreign firms Telenor and Etisalat, respectively soon after getting spectrum. The department had issued as many as 122 unified access service (UAS) licences to 10 telcos, of which seven were new while the remaining got additional licences across the country.

Raja has been under attack as DoT had allocated 2G spectrum bundled with pan-India licence for Rs1,651crore. The Opposition had alleged that the government could have garnered much higher revenues had it opted for the spectrum auction route rather than the first-come-first-serve rule followed by the DoT.

The Telecom Commission, the highest decision-making body in the DoT, had examined the matter of three-year lock-in, and had subsequently referred it to the Telecom Regulatory Authority of India (Trai). In March 2009, Trai recommended a three-year lock-in for new telecom licencees, in response to the DoT query on how windfall gain by fly-by-night operators could be prevented. Then, DoT came out with a statement in July 2009, imposing a three-year lock-in, but leaving plenty of grey areas.

According to the DoT statement, there shall be a lock-in-period for sale of equity of a person whose share capital is 10 per cent or more in the UAS licensee company on the effective date of UAS licence and whose net worth has been taken into consideration for determining the eligibility for grant of UAS licence, till the completion of three years from the effective date of the UAS licence or till fulfillment of all the rollout obligations, whichever is earlier.

The statement adds that the issue of additional equity share capital by the UAS licensee company by way of private placement or public issues is permitted.