Vodafone, Idea may have to clear dues worth Rs19,000 cr before merger: report

Vodafone India and Idea Cellular, currently India's No 2 and No 3 carriers, will have to cleat their dues worth around $3 billion (about Rs18,870 crore) before they can merge their operations to create the country’s largest telecom company with over 410 million customers, says a report in The Economic Times.

The department of telecom (DoT) is likely to shortly ask Vodafone India and Idea Cellular to pay up dues including pending licence fees, spectrum usage charges (SUC) and one-time spectrum charges (OTSC), adding up to nearly Rs18,870 crore as a pre-condition for clearing their mega merger, the report quoting sources aware of the matter said.
Vodafone India owes Rs5,532 crore by way of licence fee and SUC dues (including additional dues on these counts) while its OTSC dues is about Rs3,600 crore (as per a CAG July 2017 report). Idea owes roughly Rs7,625 crore by way of licence fee / SUC dues (including additional dues) and another Rs2,113 crore in OTSC dues.
However, the report quoting an industry official said the government won’t be able to force either Vodafone India or Idea to clear their licence fee / SUC dues since the computation of a telco’s adjusted gross revenue (AGR) is an issue that has been under dispute and is sub judice.
But a DoT official said the department will shortly send demands to both companies for approximately Rs19,000 crore.
Even if the licence fee and SUC dues are legally challenged, it will insist on bank guarantees for OTSC dues worth nearly Rs5,713 crore in line with present telecom M&A rules, in the run-up to the merger.
A telco’s AGR is the revenue derived from licensed services and the licence fee is fixed at around 8 per cent of AGR and roughly 5 per cent will be the SUC.
The reports quoting a senior DoT official said Idea is seeking approval of 100-per cent foreign direct investment (FDI) in the company and is already in discussions with DoT to determine the total dues that the telco may have to pay up before the merger is approved. This is because the Kumarmangalam Birla-led carrier will “continue to be the licensee,” post merger with Vodafone India.
Also, according to the report, Vodafone India “might be required to clear its near Rs3,600-crore OTSC dues to DoT at the earliest,” since the company will no longer exist as a licensee after its merger with Idea.
“But Idea, in this case, the acquirer, would be allowed to submit bank guarantees, equivalent to its Rs 2,113 crore OTSC dues, as a pre-condition to its proposed merger with Vodafone India,” the official is reported to have told ET.