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Hutch toehold in each Essar telecom firm

New Delhi, Aug. 19: Essar, the mobile phone licensee in Calcutta, Delhi and Gujarat, has finalised a deal with Hong Kong-based Hutchison Whampoa under which it will offer its foreign partner a stake in each of its telecom companies.

The Ruia-owned Essar will eventually hold a 35 per cent stake in the holding telecom company to be formed by Hutch and Essar and intends to keep management control.

Hutchison Whampoa is likely to invest $350 million primarily to buy spectrum, expand operations and possibly acquire a few telecom operations in the country.

The move is aimed to bring in investment to expand the cellular mobile operations of the proposed Essar-Hutch joint venture holding company and drive its acquisition plans.

Essar is the promoter in the telecom circles of Haryana, Rajasthan and east Uttar Pradesh — areas where Hutch does not hold any stake.

Hutch has a stake in the Essar operations in Calcutta, Delhi, Mumbai, Chennai, Andhra Pradesh, Karnataka and Gujarat. Essar has over 3 million subscribers across these seven circles.

Sources in Essar said, “The deal will be inked soon. We waited for the government to raise the ceiling on foreign direct investment (FDI) to 74 per cent in cellular services. That hasn't happened as yet and we can't delay things for much longer. The management feels any further delay in expanding its operations will impact the business plans of the cellular venture.”

“The arrangement is to get a substantial stake in the holding company with management control and simultaneously get the foreign partner to bring in capital for expansion. We will hold about 35 per cent stake in the holding company. The discussions are in the final stages about the stake to be given to Hutch in the other telecom companies of Essar,” sources added.

According to senior executives in Hutch, the investment will have to be made soon since the telecom sector has already started buzzing with activity.

He said the onslaught from limited mobility services had an impact on the cellular subscriber base, but claimed that the recent ruling from the Telecom Dispute Settlement Appellate Tribunal (TDSAT) would change all that.

“The limited mobile subscribers will start gravitating to cellular services. Further, we need to take into account the move to initiate a dialogue on the concept of a unified licence and move by competitors to enter as fifth cellular operator. If we do not expand now, it will be difficult to do so in another six months,” said sources in Hutch.

Essar and Hutch are likely to announce a series of initiatives to strengthen the network infrastructure and marketing plans after the deal is signed between the two partners.

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