Trai suggests 3 year lock-in on stake sale by new telcos

While recommending a blanket ban on promoters of new telecom licensees from selling their stake for a period of three years after getting the licence, the Telecom Regulatory Authority of India has added a caveat. In case a promoter does wish to sell his stake in the first three years of getting the licence, then 50% of the transacted amount must be paid to the government while the remaining 50% must be invested back into the telecom company.

While recommending the same Trai has acknowledged that the new licences given by the department of telecommunications did not capture the current market price for licences and spectrum. Further, the lock-in period would apply on circle basis and not on a pan-India basis. This means an existing telecom operator, if granted a licence for a new circle would be covered by the regulation. Further, Trai has also recommended that henceforth companies would have to report the promoter shareholding also to the it and DoT on a regular basis.

It is to be seen whether the government now acts upon the Trai recommendation or taking refuge of the model code of conduct for elections lets a new government take a decision on the matter.

FE had first reported on September 28, 2008, that the government was planning to levy a charge on the income earned from such stake sale by licensees in the first three years of getting the licence.

The department of telecommunications (DoT) had finally suggested that in order to raise money the promoter may issue fresh equity shares and the entire amount earned in doing so should be ploughed back into the telecom venture only.

The government had allotted licences to new operators in a controversial manner in 2007, where applicants were allotted licences on first come first serve basis until September. This was done for the first time and was contrary to the practice so far. It was debated that the pan-India licence fee of Rs 1,651 crore was a paltry amount for a lucrative telecom licence and the bundled 4.4 Mhz spectrum which came along with it, since the actual price was much higher and the government was being robbed of thousands of crore.

Later the promoters of new licensees such as Swan Telecom and Unitech Wireless diluted their stake in these companies by issuing fresh equity shares and received astronomical valuations of around $2 billion or around Rs 10,000 crore without starting any operations or investing money on network only on the basis of the licence and the bundled spectrum.

The regulatory body has recommended that there should be a lock-in of the equity share capital of promoter, whose net-worth has been taken into consideration for determining the eligibility for grant of UAS license, for a period of three years from the effective date of licence. However, with prior written approval of the DoT and on fulfillment of roll out obligations, the promoters may be permitted to sell their equity share even during the lock-in period.