Tata Teleservices and Hughes Tele.com India will not merge, sources close to Hughes said. But the Tata company will transfer its basic telecom operations in Andhra Pradesh to Hughes.

The Tatas had earlier contemplated merging Tata Teleservices and Hughes Tele.com.

Apart from the Andhra circle, Tata Teleservices currently holds the licence for four more circles and letter of intents for three more. Hughes operates the Maharashtra circle.

Earlier, Hughes and the Tatas were deliberating on whether to bring the new four basic licences under the merged entity.

Financial factors such as stamp duty, income tax and other reasons have prompted the promoters to undertake a review of the entire merger process, Hughes executives told Business Standard.

“We are not looking at merging the two companies. The Tatas will merge only their existing operations for the time being. We may bring the new circles at a later stage, depending on the market conditions and approval of the merged entity and its new shareholders. But this will not happen in the next 12-18 months,” a top Tata executive said.

“If Tata Teleservices can rake in a good revenues and improve the bottomline with its new operations, we may not merge the company with the merged entity of Hughes Tele.com,” the executives added.

The Tata group and Hughes have already appointed two independent valuers and are awaiting their report to finalise the swap ratio. Though they had earlier discussed a 60:40 equity holding structure between Hughes and Tatas for the merged entity, this could vary, depending upon the valuation report of the valuers, Tata executives added.

The Tatas and Hughes are currently discussing launching a common basic brand. "Since the Tatas are strong in the Indian market and Hughes has a great presence in the US region, we are finalising a brand strategy. It could be a new brand or a combination of existing brands," Tata executives close to the merger said.

"Both partners wanted to save tax on account of the proposed merger and we are currently studying the implications. In addition to this, there are some other issues to be resolved before signing the final agreement, but these are minor issues," they added.

The signing of the agreement had been delayed because of the earlier negotiations between Hughes Electronics, the parent of Hughes Tele.com, of the US and EchoStar Communications and other communications companies to buy out Hughes Electronics' stake from General Motors.