Endorsing the Department of Telecommunications' view, the Telecom Regulatory Authority of India today recommended a three-year lock-in period for stake sale by promoters who have recently received mobile service licences.
Last year, DoT had suggested that a 3-5 year lock-in period should be imposed on the sale of promoters' equity in new entrants, including Swan, Shyam, Unitech, Loop Telecom, S Tel and Datacom. The DoT had referred this proposal to TRAI.
TRAI chairman Nripendra Misra said the lock-in would also apply to new licences that Vodafone Essar, Idea Cellular and Aircel were given last year. These players were given additional licences for new circles, enabling them to become pan-India operators.
The regulator has made a concession to the new players by recommending that with prior permission from the licensor and on fulfillment of rollout obligations, the promoters may be allowed to sell a stake even during the lock-in period. However, this would be on the condition that half of the profit earned on the stake sale is retained in the company and utilised for network expansion, while the rest is transferred to the licensor.
TRAI has also endorsed the DoT view that companies can issue additional share capital and get a new player without the lock-in period being applicable.
However the equity of the promoter(s) should not fall below 10 per cent of the total aggregate during the period. Also, the management control of the licensee company will be governed by the terms and conditions of the licence agreement.
TRAI's recommendations have been sent to DoT, which will take the final decision.
Justifying the decision, Misra said the main objective of the lock-in was ''to block the unearned gains arising from transaction in stakes of promoters, particularly when the value of spectrum is not getting correctly reflected in the entry fee''.
In December 2008, the Telecom Commission, the policy-making arm of the DoT, had come up with a proposal prohibiting the promoters of telecom companies from selling their stake for three to five years. The move came in the wake of allegations against the DoT for selling spectrum at throwaway prices.
The government has faced severe criticism over telecom minister A Raja's decision to award pan-India licences for Rs1,651 crore (about $400 million), a price fixed in 2001. Critics point out that valuations commanded by the new players that offloaded stakes to foreign entities proved that the government had given these licences at throwaway prices.
For example, Unitech Wireless had bought a pan-India licence for Rs1,650 crore before selling 60 per cent of it at an enterprise value of Rs11,620 crore to the Norway-based Telenor last year.
TRAI has also specified that a company will have to inform the DoT about any change or dilution in the stake of promoters within two days of the change. A certificate from the company secretary and statutory auditors needs to be filed within 15 days from the date of transaction.
Telecom operators are not happy with the move.
GSM lobby Cellular Operators' Association of India Secretary General TV Ramachandran said, ''We have always opposed the idea of lock-in ...anything done on a retrospective basis does not make sense in this regard.''