DoT may approve merger of Vodafone, Idea Cellular in the next few days

The department of telecommunications (DoT) is likely to approve the merger of Vodafone and Idea Cellular in the next few days, making the combined entity the country’s largest mobile services operator.

Sources said all the wings of the DoT as well as Telecom Secretary Aruna Sundararajan had given a go-ahead to the merger. After signature by Communications Minister Manoj Sinha, the approval document will be sent to the companies.

The sources further said neither company would have to pay big sums to the government as most dues, including licence fees and spectrum charges, were under litigation.

“Dues under judicial intervention cannot be sought by the government. Only the ongoing dues need to be paid by the companies at the time of merger,” a source in DoT said.

The source added that although one-time spectrum charges had also been stayed, Idea Cellular, the acquirer, would have to furnish a bank guarantee for this charge in accordance with the merger and acquisition guidelines. One-time spectrum charges for Idea Cellular stand in the range of Rs 20-25 billion. Idea is likely to contest the bank guarantee demand by the DoT. Ongoing dues, which include penalties and other minor charges, are just a few billion rupees, which will be paid at the time of merger.

Jio effect: Tata Tele's net worth erodes by Rs 11,650 cr

The woes of Tata Teleservices continue to mount with its net worth eroding by Rs 11,653 crore at the end of the financial year ended March 2017, on rising losses and interest payments.

The company announced a loss of Rs 4,617 crore for FY17, compared to a loss of Rs 2,023 crore in FY16. This is a bad news for its promoter, Tata Sons, which will have to keep investing in the company’s equity so that it can meet its liabilities, bankers said. But, the company’s debt stood reduced almost five per cent from Rs 30,192 crore in FY16 to Rs 28,766 crore in FY17.

Because of the price war in telecom spurred by the entry of Reliance Jio, the Tata group company’s turnover declined to Rs 9,419 crore in FY17 from Rs 10,588 crore in FY16.

The Tata group company is not the only one which struggled during the year. Aditya Birla Group’s Idea Cellular also reported losses of Rs 400 crore, compared to a profit of Rs 2,728 crore in FY16. Sales and profits of the top two players, Bharti Airtel and Vodafone, also declined during the year (See chart).

Bankers said they were not worried about Tata Teleservices’ debt service coverage ratio of 0.18 as Tata Sons always stepped in with funds to pay bank loans. The Ebitda (earnings before interest, taxes, depreciation and amortisation) fell to Rs 1,341 crore in FY17 from Rs 1,700 crore in FY16.

Jio’s launch, in fact, has triggered a consolidation among the current telecom players. Vodafone India, the country's No.2 telecom company in terms of revenues, and Idea Cellular have announced a plan to merge their operations in India, thus becoming the country's No.1 player. Bharti Airtel, India’s No.1 player, has merged smaller player Telenor with itself. Reliance Communications is awaiting the Supreme Court’s approval to merge its wireless telephony business with Aircel, thus reducing its debt by half.

The rising losses of Tata Teleservices may be a dampener for a suitor to buy or merge the company.

READ MORE