Idea to buy spectrum from Videocon Telecom for $500M
Other | Photo Credit: Reuters

Idea Cellular Ltd has agreed to acquire the right to use spectrum in two service areas from Videocon Telecommunications Ltd for Rs 3,310 crore (just under $500 million), as the country's third-largest telecom operator by subscribers gears up to launch fourth-generation (4G) services.

The agreement is for two contiguous blocks of 5 MHz each in the 1800 MHz spectrum band in Gujarat and Uttar Pradesh (West), Idea said in a statement on Tuesday. The move comes after the government last month changed rules to allow buying and selling of spectrum.

Idea said it is on track to launch 4G services based on the long-term evolution (LTE) technology in 750 towns across 10 service areas by June 2016. After the completion of this transaction, it plans to introduce 4G services in Gujarat and Uttar Pradesh (West) as well.

Idea’s 4G plan is part of an industry-wide trend where most top Indian telecom operators are focusing on data to boost revenue. Bharti Airtel Ltd, the No.1 ranked operator, was first off the block in rolling out 4G services. The local arm of Vodafone Group Plc and billionaire Mukesh Ambani-controlled Reliance Jio, the only company to have pan-India 4G spectrum, also plan to launch 4G operations within a few months.

Idea Cellular said it will have the right to use spectrum in the two service areas, or circles in industry parlance, until December 2032.

The deal will expand Idea’s 4G spectrum footprint to 12 service areas covering 75 per cent of its revenue.

India's telecom market is divided into circles that mostly coincide with states, but some large markets are divided further and some smaller ones are clubbed together.

The deal awaits regulatory clearances, and Idea said the aggregate amount may change based on due diligence.

Along with the right to use spectrum, Idea will also be taking over the outstanding deferred payment liability of Videocon Telecom – one of the smallest telecom operators in India -- for the two circles. This amount, payable to the government, will be Rs 482.26 crore. This amount plus interest accrued on it till the date of closing of the transaction will be reduced from the aggregate consideration of Rs 3,310 crore payable for the right to use the spectrum.

The deal will expand Idea’s 4G spectrum footprint to 12 service areas covering 75 per cent of its revenue and 72 per cent of its existing 170 million subscribers. These 12 circles contribute 60 per cent of the Indian telecom industry mobility revenues.

After completion of this transaction, Idea would have full range of mobility services across 2G, 3G and 4G technologies in all of its eight key markets of Maharashtra and Goa, Kerala, Andhra Pradesh and Telengana, Madhya Pradesh and Chhattisgarh, Haryana, Punjab, Gujarat and Uttar Pradesh (West).

Idea’s combined revenue market share is 30.3 per cent and subscriber market share is 28.6 per cent in these eight telecom circles, the company cited a report by the Telecom Regulator Authority of India for the second quarter of 2015-16.

Part of the diversified Aditya Birla Group, Idea counts PE firm Providence and Malaysia's Axiata as shareholders.

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