Rajeev Chandrasekhar's official website - Member of Parliament

GOVERNMENT OF INDIA

Ministry of Communications and Information Technology Department of Telecommunications

RAJY A SABIIA
UNSTARRED QUESTION NO. 2940
TO BE ANSWERED ON 22nd APRIL, 2010
M&A Cases

 

2940. SHRI RAJEEV CHANDRASEKHAR:
Will the Minister of COMMUNICATIONS AND INFORMATION TECHNOLOGY be pleased to state:

(a) whether it is a fact that TRAl recommended that no Mergers and Acquisitions (M&A) cases would be entertained till rollout obligations were met vide its guidelines of 21 April, 2007;

(b)        if so, whether Government consulted the TRAI before deviating from these guidelines; and

(c) if so, to what effect and if not, the reasons therefor?

ANSWER
THE MINISTER OF STATE IN THE MINISTRY OF COMMUNICATIONS AND INFORMATION TECHNOLOGY
(SHRI GURUDAS KAMAT)

(a) to (c) TRAI, in its recommendations dated 28th August, 2007 on "Review of license terms & conditions and capping of number of access providers" inter-alia, recommended that "Any proposal of permission of merger and acquisition should not be entertained till the roll out obligation is met".

Government accepted most of the recommendations of TRAI made on "Review of license terms & conditions and capping of number of access providers’’. However, as the Roll out for each licensed service area were done in two phases (completion of 18\ Year & 3rd year from the effective date of the licences) which are dealt separately, therefore the Government, inter-alia, prescribed the following in the Guidelines dated 22.04.2008 for intra service area Merger of Cellular Mobile Telephone Service . (CMTS)/Unified Access Service (VAS) Licences:

  1. Any permission for merger shall be accorded only after completion of 3 years from the effective date of the licences (which was a period for completion of 2nd phase of rollout obligation).
  2. For regulating acquisitions of equity stake of one access services licensee Company/legal person/promoter company in the enterprise of another access services licensee in the same license area, present guidelines on Substantial Equity shall continue, i.e., "No single company/legal person, either directly or through its associates, shall have substantial equity holding in more than on LICENSEE Company in the same service area for the Access Services, namely, Basic, Cellular and Unified Access Service. 'Substantial equity' herein will mean 'an equity of 10% or more'. A promoter company/Legal person cannot have stakes in more than one LICENSEE Company for the same service area."

Further, to deny any out-right sale of equity by the promoters, the issue relating to lock-in-period for sale of promoter's equity of the VAS licensee company was under consideration of the DOT and the recommendations of Telecom Regulatory Authority of India (TRAI) were also sought on 24.1l.2008 which was received on 12.03.2009. Accordingly, Government on 23.07,2009 issued amendments to VAS Licence agreements, as detailed below:

  1. There shall be a Lock-in-period for sale of equity of a person whose share capital is 10% or more in the VAS licensee company on the effective date of VAS licence and whose net-worth has been taken into consideration for determining the eligibility for grant of VAS license, till completion of three years from the effective date of the VAS or till fulfillment of all the rollout obligations under clause 34, whichever is earlier.
  2. Issue of additional equity share capital by the VAS licensee company by way of private placement/public issues is permitted. However, such a person (on whom the Lock-in condition applies as per para (i) above) shall not transfer in any manner such as sale, assignment etc., his share capital directly or indirectly to any other person during lock-in-period, i.e., the invested amount in the shareholding by the equity holder shall not be reduced in any circumstances during the lock-in period.
  3. In case of issue of fresh equity, within the lock-in period the declaration of dividend and/or special dividend shall be barred.
  4. The provision of lock-in period shall not apply, in pursuance to enforcement of pledge by the lending financial institutions/banks in the event of defaults committed by the UAS licensee company.