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In a move that might hit UK telecom major Vodafone and benefit Bharti Airtel, the Department of Telecommunications (DoT) is considering extending the cross-holding rules for unified licensing (UL) to unified access service (UAS) and cellular mobile telephone service (CMTS) licences.
According to the new rules, incorporated in the UL regime, telecom operators with spectrum in the same service areas have been barred from holding equity in one another.
At present, incumbent operators such as Vodafone, holding both UAS and CMTS licences in various circles, are not required to migrate to the new UL regime. So, Vodafone would not have had to sell its 4.4 per cent effective stake in Bharti Airtel within 12 months, as mandated by the cross-holding rules for UL. But, if the same rules are extended to UAS and CMTS licences, too, it will be left with no choice but to sell its stake within a year — despite weakness in the market.
| SHARE OF TROUBLE |
A look at cross-holdings in telecom
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Bharti, on the other hand, according to analysts, could buy out Vodafone’s stake at a lower cost and later sell it at a higher price. The promoters could also buy the stake and enhance their holding in the company.
The Bharti Airtel stock has fallen from Rs 337.35 on July 26 to Rs 307 on Monday. Considering the current market capitalisation, the value of Vodafone’s stake in the company would be Rs 5,399 crore.
Following demands from a member of Parliament (MP), Telecom Minister Kapil Sibal is learnt to have asked the DoT secretary to examine the issue and amend the cross-holding norms for UASL and CMTS licences in line with those for UL. A top DoT official said: “Yes, the proposal is with us and we are considering its implementation.”
The MP had raised the concern that the cross-holding restrictions might not be effective, unless DoT amended the cross-holding-restriction clauses in the current UASL and CMTS licences as well. The opinion was that incumbent telcos could defer migration to the new regime and continue to hold their stakes in other telcos.
The existing UASL norms allow promoters of a telecom company to hold up to 10 per cent equity stake in another firm in the same circle.
Vodafone had made a strong plea against the new rules earlier, too. It had written a letter to Sibal in July, saying the new regulation would be a “disadvantage” for the British telco in India. It had also said that an indirect holding, such as its 4.4 per cent stake in Bharti Airtel, would not possibly have a major impact on the business of a rival.
According to the new guidelines, all licensees need to migrate to the UL regime to be able to expand the scope of their service or include additional services or service areas. In the case of mergers & acquisitions among licensees that have not migrated to UL, the merged entity would have to move to the regime.
