Idea Cellular, Videocon agree to transfer spectrum

The amount of outstanding “Deferred Payment Liability” after repayment of first instalment on December 1, 2015 by Videocon will be Rs. 482.26 crore and this amount plus interest accrued thereon till the date of closing of transaction will be reduced from the aggregate consideration of Rs 3,310 crore payable for right to use the spectrum. “Idea’s spectrum acquisition of two circles from Videocon at a high premium highlights its need to improve 4G footprint given an aggressive push by Bharti (Airtel) and the imminent launch of Jio”, Citigroup said in a note to clients.

In a move to use the spectrum for the launch of 4G services in nearly all areas of Gujarat and Uttar Pradesh (UP) West, leading mobile operator Idea Cellular on Tuesday signed an agreement with Videocon Telecommunications to buy its airwaves in these two major states for Rs3,310 crore. “Idea is on track to launch its 4G services in 750 towns across existing 10 4G circles by first half of calendar year 2016, and after the completion of this transaction, plans to introduce 4G services in calendar year 2016 in Gujarat and Uttar Pradesh (West) circles”, the company said.

The transaction will be effective only after completion of the due diligence related to the spectrum, and written confirmation by Department of Telecommunications (DoT) on the transfer of right to use spectrum to Idea Cellular. This is because as per the trading guidelines, the seller (Videocon here) needs to pay to the government licence fee and spectrum usage charge amounting to 13% of the amount received.

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Idea Cellular has 4G airwaves in seven circles, the company’s chief executive Himanshu Kapania had said. While both circles are important ones – they contribute around 15% of Idea’s current revenue, and around 10% for the industry as a whole – till this deal took place, Idea didn’t have the spectrum to be able to offer 4G services. Presently VTL is providing GSM Mobile Services in the 6 circles.

Once the government allowed spectrum trading and sharing, it was only a matter of time before telcos started finalizing deals, though it is obvious that more agreements will happen once the spectrum caps are revised meaningfully.

Videocon Telecommunications owes the DoT for the spectrum, which was awarded during the in November 2012 auction. Citigroup said the high price was a reflection of the importance of contiguous spectrum which was critical for 4G. This would include 9Mhz in Gujarat and 14.8MHz in UP (West) – which means, had the harmonisation happened, Idea could have bought the spectrum from the government, not Videocon.

As per data from Telecom Regulatory Authority of India (Trai), Gujarat had total VLR (visitor location register) subscribers of around 55 million in September, while UP (West) had about 48 million VLR subscribers, across all telecom operators.