Fineprint

As the heat and dust around the 1.2-billion Essar-Hutch deal to take over BPL Mobile dies down, the Rs 33,500-crore Indian cellular phone i...

As the heat and dust around the 1.2-billion Essar-Hutch deal to take over BPL Mobile dies down, the Rs 33,500-crore Indian cellular phone industry is now focused on how it all fits in with the department of telecommunication DoT regulations.

The current rules bar any intra-circle merger which gives more than 66 per cent market share to a single telecom player. As far this deal is concerned, the Bombay circle comes into question as both players are present there.

732;If DoT clears Hutch-Essar and BPL merger, it will open floodgates for similar M038;A deals across the country. 8216;8216;There may be some regulatory issues about the merger. But such high valuations may not have come if this merger was not allowed,8217;8217; says a Delhi-based telecom analyst.

The competition feels otherwise. 8216;8216;The two issues with this deal is how Essar-Hutch convinces the government that this deal does not violate any of its guidelines,8217;8217; said the CEO of a cellular phone firm. 8216;8216;The second issue is the uneasy relationship between Essar and Hutch over the former8217;s ambitious expansion plans,8217;8217; he said on conditions of anonymity.

Essar officials say while signing the deal they had made it very clear that the deal is subject to clearances from the government. 8216;8216;As far as Tamil Nadu, Kerala and rest of Maharashtra are concerned, there is no issue.

But we are arguing that our market share in Mumbai will be only 53 per cent of the total wireless phone market if we add CDMA customers of Reliance and Tata as well.8217;8217;

Essar officials they have been working on this deal for the last eight months and the negotiations in between were kept in cold storage due to the fight between Rajeev Chandrasekhar, chairman of BPL Mobile Communications and his father-in-law TPG Nambiar. 8216;8216;Do you think we will commit 1.2 billion without taking the regulatory issues into account?8217;8217; they ask.

Story continues below this ad

As per the deal, 600 million of debt in BPL8217;s books will be transferred to Essar Teleholdings and another 600 million will be paid to Chandrasekhar and other promoters of BPL Communications for their equity holding. Essar says it has also lined up investments in the new company through a mix of debt and internal accruals.

If the government does give permission to the merger, it will allow more intra-circle mergers in the country. Big brothers Airtel and Reliance are just waiting for such opportunity to gobble up smaller players in various circles across the country.

The other issue is the uneasy relationship between Essar and its partner Hutch. There are differences over the equity structure of the holding company between Essar and Hutchison Essar. Essar wanted more than 30 per cent stake in the Hutchison Essar combine but the Hong Kong-based conglomerate did not allow.

At the same time, Essar Spacetel also went ahead with bidding for seven more circles on its own, which Hutch did not like as they do not have any presence in these circles. Essar officials say they are in continuous talks with Hutch to find a way out but did not give details. In fact, there8217;s no better time than the post-deal afterglow.