Wrong call by DoT

The conditions for the Vodafone-Idea merger are unfair

On Monday, the Department of Telecommunications gave its approval to the long-pending merger of Vodafone and Idea, two of the biggest players in the Indian market. While this will clear the decks for what will be the world's second-largest telecom company, the conditions set by the DoT are unfair. According to initial reports, the department has asked Idea Cellular to pay Rs 39 billion in cash for Vodafone’s spectrum and furnish a bank guarantee of Rs 33 billion, which the companies have reportedly decided to comply with to prevent further delay. The closure of the merger is a relief, not only because the companies have been preparing for the change for a long time, with a new management team already announced, but also because this high-profile merger has the ability to restore some faith in the future of the sector. 

But the merger should not have been held hostage to procedural nitpicking. The DoT should have taken a more strategic view of the sector instead of raising conditions related to responsibility for charges it believed were due from the legacy companies in relation to the acquisition of spectrum. There are regulation, fittingly in place, in order to ensure that purchases and mergers are not structured to take advantage of spectrum that was administratively assigned in the past. Such dues must certainly be paid. Vodafone, for example, is in dispute with the authorities on whether it must pay Rs 47 billion following the merger of some group companies in 2015. It paid Rs 20 billion in the past when ordered to by the Supreme Court. The DoT was right to insist that the remaining amount, if upheld by the legal process, was the responsibility of the merged entity. However, that is the extent to which the DoT should have considered itself empowered to hold up the merger.

The department should not have used the merger as an excuse to second-guess the dispute settlement process, for example — commercial considerations in this vital sector should not have been held hostage to the department's desire to be paid as soon as possible, even if it felt that it was legally empowered to force the issue before a merger. Nor should have the manner of how the payment would be made — in cash or through bank guarantees — been considered a sufficient criterion for clearing the merger. Certainly, if the telecom tribunal determines that the DoT is owed money, the merged company must pay up, and the government should expect a watertight undertaking that it will do so. But the DoT should not have interpreted a government lawyer's advice that it can hold up the merger in order to enforce payment in the dispute to mean that it must set impossible conditions. That betrays a lack of responsibility. After all, the delay in the closure of the merger owing to wrong interpretation and legal wrangling was unfair to the companies as they risked losing key customers and revenue market share to rivals, as scaling up their network quality and go-to-market strategies also got proportionately pushed back.