Crossholding in same telecom circle may go

DoT's proposal to impact many, including Vodafone

The Department of Telecommunications (DoT) is working on a proposal to disallow crossholding by one telecom firm in a competing one in the same circle.

Under the current rules, a promoter in a telco can acquire up to 9.9 per cent stake in another in the same circle. The scrapping of the clause could have a far-reaching impact on many equity investments made by foreign companies, such as Vodafone, which has a stake in Bharti Airtel. It would also bring to close a controversial clause that has led to investigations about alleged violations, as well as battles between promoters.

A senior DoT functionary confirmed the proposal, saying: “The 10 per cent clause has been abused by many investors, who use it to keep a tab on competing firms. It also does not have any beneficial impact on consumers. So, we should not permit it.”

Under the current clause 8 of the UASL licence, no single company or legal person, either directly or through associates, can have “substantial equity” holding in more than one licensee company in the same service area for the basic, cellular and unified access services. ‘Substantial equity’, here, would mean “an equity of 10 per cent or more”.

However, under the proposed draft guidelines, the rules are being changed to say that “no licensee company or its promoters, either directly or indirectly, shall hold any equity or have voting rights in any other access service licensee company holding access spectrum in the same service area. The access service licence would include basic, cellular, unified access service licensee and unified (access service) licensee and unified licensee holding access spectrum, among others.”

It even clarifies the definition of the promoter to mean a legal entity, other than the central government and its financial institutions, which holds 10 per cent or more equity in a licensee company. It has also set a deadline for the change and says “any prior arrangement not in conformity shall be made consistent with the above stipulations within a year of obtaining unified licence or spectrum, whichever is earlier”.

For instance, if the changes are cleared, Vodafone Plc, which has an effective 4.4 per cent holding in Bharti Airtel, would have to sell the stake as it already holds a majority equity in Vodafone India.

The 10 per cent cap has come under scrutiny and has generated controversy in many telecom deals and the matter has even been investigated by the Central Bureau of Investigation. For instance, the Ruias came under lens on Essar Group’s alleged links with Loop Telecom. CBI claimed they held more than 9.9 per cent stake, violating the current policy. That was because, at that time, they held a 33 per cent stake in Vodafone-Essar, too; they later sold it to the UK-based telco. However, the Ruias have denied the allegation.

The Tatas and the Aditya Birla group also fought a bitter battle, as the former had 48 per cent stake in Idea Cellular, though they controlled Tata Teleservices. They later sold off their stake to the Birlas.

New norms on cards

Key proposals

No licensee company or its promoters, either directly or indirectly, shall hold any equity or have voting rights in any other access service licensee company holding access spectrum in the same service area

An access service licensee is a basic/cellular/unified access service licensee/unified licensee (access service) licensee/unified licensee holding access spectrum under the access service and/or internet service authorisation/internet service providers holding access spectrum

A promoter shall mean a legal entity (other than central government and its financial institutions) which holds 10% or more equity in a licensee company

Any prior arrangement not in conformity shall be made consistent with the new stipulations within a year of obtaining unified licence or spectrum, whichever is earlier

Exception granted in Para 1.4 of the UAS licence, in respect of basic and CMTS licensees as on Nov 11, 2003, shall end on the expiry of CMTS licence held by such licensees

Current policy

No single company/legal person, either directly or through its associates, shall have substantial equity holding in more than one licensee company in the same service area for the access services - basic, cellular and unified. ‘Substantial equity’ herein will mean ‘an equity of 10 per cent or more’.