The Hindu Business Line : Regulatory hurdles to Hutch bids

Even as Reliance Communications is bidding to acquire Essar Hutchison's cellular operations, the Department of Telecom has sought legal opinion on whether a telecom company can get both CDMA and GSM spectrum under the Universal Access Services Licence without paying any additional fee.

While Reliance Communications is primarily a CDMA-based mobile operator, Essar Hutchison is a GSM-based cellular service provider.

The DoT move assumes significance in the light of the fact that Reliance had earlier sought GSM spectrum for rolling out a new network across the country.

DoT yet to respond

While DoT has still not responded to Reliance's request for GSM spectrum, the Anil Ambani-promoted company is now among the leading firms in the race for acquiring Essar Hutchison's GSM cellular business.

Industry sources said that Reliance could bid through its GSM venture, Reliance Telecom.

According to DoT sources, clarity is also being sought on whether the 15 Mhz cap on spectrum as mentioned in the mergers and acquisitions guidelines includes both CDMA and GSM spectrum or only GSM. If, for instance, Reliance acquires Essar Hutchison, then it will have 6.2 Mhz of CDMA spectrum and 10 Mhz of GSM spectrum in a circle such as Delhi.

The guidelines stipulate a cap of only 15 Mhz without clarifying whether it allows for a mix of spectrum frequencies. In such a case, the merged entity may have to surrender the excess spectrum, which could be a big task considering that the number of subscribers would not reduce.

As per the DoT guidelines, the merged entity should not have more than 67 per cent of the subscriber base in any of the Circles. According to analysts, this clause may not be an issue since no operator has more than 25 per cent share of the market. So even if two companies with 25 per cent share each were to merge, it would amount to 50 per cent which is much below the stipulated benchmark.

Another clause that could have an impact in the way the deal would be struck is the norm that prohibits any company to own more than 10 per cent stake in two different telecom companies in the same Circle. This norm could mean that the buyer may take 100 per cent stake in Essar Hutchison in which case the 10 per cent clause will be redundant.

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