Winner in Hutch bid faces spectrum worry

NEW DELHI: Barring international bidders like Maxis of Malaysia or the Ruias, any domestic bidder for Hutchison Essar may face hurdles in consummating the deal.
In recent days, the media has been abuzz with news about Anil Ambani’s imminent bid for Hutchison Essar, which is 67% owned by Hongkong magnate Li Ka-Shing, with the Ruias holding just under 33%.

There’s even talk of wrapping up the deal by December 28, the birth anniversary of Dhirubhai Ambani.

Sunil Mittal of Bharti Airtel is also said to be looking at his options from the sidelines.  But while bid amounts of various kinds have been bandied about - around $13-14 billion —  any winning bidder will have to be compliant with the merger and spectrum guidelines of the government.

Will Sunil Mittal of Bharti Airtel be able to bid for Hutchison Essar?

According to industry observers, some key clauses of the licensing conditions on intra-circle mergers may work against Bharti even if he is in a position to bid.
The mergers and acquisitions guidelines issued in February, 2004, say that no merged entity can hold more than 15 mhz of spectrum in a licence area. Going by this clause, if Airtel and Hutch were to merge, the combined entity will have to vacate spectrum in some circles where they together hold over 15 MHz between them.

However, Sunil Mittal would still have the “discretion to choose the band to surrender for levels of spectrum beyond the ceiling”. Similar spectrum issues could bog Reliance down too - especially in the big circles where spectrum usage is already close to the limit. The only advantage Reliance has is that it gets less spectrum than GSM players, and thus has more scope for manoeuvre. Another issue is the monopoly clause, which specifies that no operator can hold more than 67% of the total subscriber base in any circle. Clause 5 of the merger guidelines say that any merger, acquisition or restructuring, leading to a monopoly market situation in the given service area, shall not be permitted. Monopoly market situation is defined as market share of 67% or above within a given service area as on the last day of the previous month. Subscriber base is the criterion used for computing market share. Sources close to both Bharti and Reliance say that they are not anywhere near that limit in any circle.

“The market share must be seen as a whole - GSM and CDMA put together,” a Bharti source said. Reliance, which has fewer subscribers than Bharti, does not breach the 67% condition, sources said. Neither Bharti nor Reliance officials were available for formal comments. Yet another issue could relate to the duration of the licence.

The guidelines say that the licensing period will be limited to that of the acquiring company. Hutch, which recently obtained licences for seven new service areas, has a longer licence mix than Bharti. To avoid shortening the tenure, Bharti would have to engineer a reverse merger with Hutch, which is as yet unlisted. That may lead to its own regulatory issues.