Wrong Number

The Tata-Birla war over Idea Cellular is about cash, not compliance, reports Dev Chatterjee

It8217;s the proverbial lull before the storm. The war of words between the Tatas and the Birlas8212;two of the oldest industrial houses in the country8212;may have abated in the last one week, but both sides are preparing for a legal battle ahead if the issue over the shareholding of Idea Cellular is not sorted out by the Department of Telecom.

The increasing valuation of telecom companies8212;as seen by the 49 per cent buyout of Spice Telecom by Telekom Malaysia8212;is yet another reason why the stakes in the Tata-Birla war are increasing by the day. 8216;8216;It8217;s cash8230; and not the compliance issue as made by the Birlas,8217;8217; said a Tata insider on Saturday. Valuations have gone up by at least 30-40 per cent in the last year because of many high-value deals including Sterling Cellular-Maxis and BPL Mobile-Hutch deal.

No way out

For the Birlas, there appears no way out but to open talks with the Tatas to buy out their stake. The Tatas with 48 per cent stake can add another 1.85 per cent stake in Idea Cellular8212;which is financially doing quite well8212;thanks to partner C Sivasankaran of Sterling.

The Tata stake, according to a conservative estimate, will easily fetch them close to 1.4 billion Rs 6,200 crore even as the Tatas have asked Idea Cellular to appoint an independent valuer to buy the Birlas out of the joint venture.

The Birlas are betting on the DoT to ask Tatas to back out by selling their stake to bring it below 10 per cent citing non-compliance of licensing norms. The Indian telecom regulations say that a company which operates a cellular license should not operate another licence in the same circle in order to ensure fair competition. The 10 per cent ceiling norm, analysts feel, is outdated as many Indian telecom companies like Hutch bypassed the law by giving loans to their own MDs to warehouse shares for them.

The Tatas, however, say they have not breached any licensing norms as it is Tata Sons which holds stake in Tata Teleservices while another group company Tata Industries holds shares in Idea Cellular. As per DoT norms, a promoter is defined as the owner of shares and the entire group is not included.

What Next?

Both Birla and the Tata officials know that they have to initiate talks to buy one of the other out. Both deny selling out to get a better valuation. With the posturing over, the issue will only be sorted out by sitting across the table.

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The DoT is under no pressure or deadline to respond to the Birlas letter. The Tatas have said it8217;s the Telecom Regulatory and Authority of India Trai which is the right forum for the matter between the shareholders to be sorted out.

The Tatas also say they have received many offers from potential buyers for their stake in Idea. Both have first right of refusal, and do not have any other option but to take each other8217;s consent. To pressurise the Birlas, the Tatas have even served a notice of termination on the Birlas for leaking the financials of the Idea Cellular.

With both companies sticking to their guns, the fight is taking a toll over Idea Cellular8217;s future plans. Idea officials say their plans to raise Rs 300 crore from the financial institutions and applying for new licences for national direct dialing is under a cloud.

Whatever the outcome of the spat, it is quite evident that telecom regulations have become outdated and it8217;s time for DoT to take a relook.