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Essar puzzle in telecom licence call

Mumbai, Sept. 7: The Ruias of the Essar group are looking to hedge their bets in the telecom space.

The group, which has a 33 per cent stake in Vodafone Essar, has now filed for a pan-India licence for BPL Mobile Communications (BPL Mobile), which provides telephony services in the Mumbai circle.

The Ruias have kept everyone guessing about their real telecom strategy after Shippingstop.com, a subsidiary of BPL Mobile, submitted an application to the telecom department on Thursday seeking mobile licences in 21 circles.

The Essar group had acquired BPL Mobile, which has 1.1 million subscribers, from Rajeev Chandrasekhar and his family in 2005 for Rs 4,400 crore. The deal had included sister concern BPL Mobile Cellular (BPL Cellular), which held licences for the Maharashtra, Tamil Nadu and Kerala circles.

BPL Cellular was merged with Hutchison Essar, which was owned by the Hutchison Whampoa group of Hong Kong before it sold its controlling interest to Vodafone of the UK in May.

Plans to merge BPL Mobile ran into trouble after Hutchison Essar failed to secure the requisite government approvals within an agreed deadline, sparking a court-mandated arbitration process.

BPL Mobile remains within the Essar fold even though the Ruias were paid over 90 per cent of the transaction cost of Rs 5,064.9 crore for the two BPL companies. The company's shareholding structure also remains fuzzy. Essar Tele-holdings has around 9.9 per cent in the firm while the rest is held by investors who are close Ruia associates.

“We have a sizable presence in Mumbai but need to have a strategic roadmap for growth. We want a larger footprint to derive economies of scale and cost synergies in this highly competitive market. Expansion into new circles will meet both these objectives,” said S. Subramaniam, CEO and director of BPL Mobile.

Sources said the presence in the 21 circles is conditional on the allocation of spectrum — a process that may take some time. BPL Mobile will be the sixth company after Aircel, Spice Telecom, Idea Cellular, Reliance Communications and Parsvanath Developers to seek more spectrum allocation.

Observers are, however, not buying the simple argument that BPL Mobile is looking for a larger footprint.

Analysts say that there could be two reasons for the sudden development: first, it could signal tough posturing in the middle of the arbitration proceedings that Vodafone is doggedly pursuing; second, the Ruias may be looking to crank up the valuation of BPL Mobile before a renegotiated sale.

Reports have said that while Hutch Essar has contended that shares of BPL Mobile must be transferred to them and that the termination of the agreement was illegal, BPL Mobile has claimed Rs 1,300 crore in damages as injunction on the sale of its shares had hurt its shareholders.

Essar has the option to sell its 33 per cent stake in Vodafone Essar to the UK parent for $5 billion between the third and fourth years or an option to sell between $1 billion and $5 billion worth of Vodafone Essar shares at an independently-appraised fair market trading value.

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