Ministry of Communications and Information Technology

DEPARTMENT OF TELECOMMUNICATIONS

RAJYA SABHA
UNSTARRED QUESTION NO. 3199
TO BE ANSWERED ON 26th AUGUST, 2010
M&A Cases


3199. SHRI RAJEEV CHANDRASEKHAR:

Will the Minister of COMMUNICATIONS AND INFORMATION TECHNOLOGY be pleased to state:

(a) Whether TRAI has recommended that no 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;

(c) if so, to what effect; and

(d) if not, the reasons therefor?

 

ANSWER
THE MINISTER OF STATE IN THE MINISTRY OF COMMUNICATIONS AND INFORMATION TECHNOLOGY
(SHRI SACHIN PILOT)

(a) to (d) 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 1st Year & 3rd Year from the effective date of the licenses) 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 Services (UAS) Licences:

(i) Any permission for merger shall be accorded only after completion of 3 years from the effective date of the licenses (which was a period for completion of 2nd phase of rollout obligation).

(ii) 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 one 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 UAS licensee company was under consideration of the DoT and the recommendations of Telecom Regulatory Authority of India (TRAI) were also sought on 24.11.2008 which was received on 12.03.2009. Accordingly, Government on 23.07.2009 issued amendments to UAS License agreements, as detailed below:

(i) There shall be a Lock-in-period for sale of equity of a person whose share capital is 10% or more in the UAS licensee company on the effective date of UAS license and whose net worth has been taken into consideration for determining the eligibility for grant of UAS license, till completion of three years from the effective date of the UAS license or till fulfillment of all the rollout obligations under clause 34, whichever is earlier.

(ii) Issue of additional equity share capital by the UAS 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 scale, 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.

(iii) In case of issue of fresh equity, within the lock- in period the declaration of dividend and/ or special dividend shall be barred.

(iv) 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.