Idea starts demerger of licences

Idea Cellular, the telecom arm of the Aditya Birla Group, is going ahead with the demerger of its wireless licences in Punjab and Karnataka, after waiting in vain for legal clarifications from the government.

Sources familiar with the development said the company is planning to club the two licences with four belonging to Spice Telecom (which Idea acquired) that overlap with its own — in Andhra Pradesh, Delhi, Haryana, and Maharashtra — and try to sell the whole lot at one go.

The move is seen as a way to recover about Rs 850 crore that is now locked up in the six licences.

Idea had shelled out Rs 358 crore for the Punjab and Karnataka circles in January 2008, while Spice had paid for the remaining circles.

Spice merged into Idea in June 2008, making one licence in each of the six circles redundant.

An operator is not allowed to hold two licences in the same circle in order to prevent spectrum hoarding.

However, in the case of Idea-Spice, the licences held by Idea in Punjab
and Karnataka did not have any spectrum allotted to them, while Spice was yet to start operations using the spectrum which had been allotted to it in the overlapping circles such as Delhi.

A demerger will help the combine deal with legal hurdles.

Sources within Aditya Birla Nuvo, the promoter of Idea and Idea Cellular confirmed the move to demerge the licences in Karnataka and Punjab, but did not comment on whether the spectrum-carrying licences such as Delhi, Andhra Pradesh etc would be clubbed into the process.

Idea had, soon after announcing the merger, written to the Department of Telecom (DoT), which oversees the allocation of licences and spectrum, asking whether it would be able to get its money back if it surrendered the licences.

It also shot off a reminder a few months later, when it did not get a response. The company has now decided to go ahead with the demerger process.

“We are a company that wants to go by the law.. and that is why we have repeatedly written to the government asking them to clarify the position. However, we would like the demerger to happen because it will give us greater flexibility,” an Idea official said.
The demerger is expected to take 6-8 months, according to the official.

The delay may be a good thing, according to industry experts, as interest in the six circles, though among the most lucrative in India, is limited in the current market.

“The era of spectacular valuations and strategic fits are over.. there are way too many holders of licences and even spectrum who don’t really know what to do with it. No existing players are likely to fall over themselves trying to acquire these licences.

Their best chance is to find an entirely new player, who missed out on the previous allocations, and doesn’t mind starting off with these six circles,” said a senior telecom consultant.

“Anyway, it’s dead money for the parties right now,” he pointed out. A week ago, Idea Cellular posted a net profit of Rs 975 crore on revenues of Rs 9,962 crore for the financial year 2008-09.