-

It did not take very long for Cingular to find another buyer for its stake in Idea Cellular, after its deal with the Singapore Technologies Telemedia (STT)-Telekom Malaysia (TM) combine fell through.

The AV Birla Group and the Tatas, Cingular's existing partners and Idea's founder shareholders, have agreed to buy Cingular's 743.56 million equity shares, or a 32.9 per cent stake, in Idea for $300 million. The Tatas have reportedly confirmed their participation in the offer and the A.V.Birla group company Indian Rayon has issued a statement to the stock exchanges, stating that they are accepting the Cingular offer. Cingular would be paid approximately Rs 17.5 per share for its stake.

The Cingular stake will be equally divided between the Birlas and the Tatas.Both the companies are expected to shell out $150 million each for their respective 16.45 per cent stake. Post-acquisition, Birla's stake in Idea will increase to over 50 per cent from about 34 per cent currently, while the Tatas' stake will go up to about 48 per cent from about 32 per cent. The balance under 2 per cent stake would be held by AIG. Deutsche Bank acted as the adviser to Cingular.

Idea is an equal joint venture between New Cingular and the Tata and AV Birla groups.Cingular had acquired the stake as a legacy following AT&T's merger with it.

Idea's acquisition of Escotel last year made it the fifth largest mobile service provider in the country. With a subscriber base of 5.7 million and a market share of 12.36 per cent, Idea has a presence in eight of the 23 telecom circles in the country. These are Delhi, Maharashtra, Gujarat, Andhra Pradesh, Madhya Pradesh, Haryana, Uttar Pradesh (West) and Kerala. However, compared to its rivals Bharti, Reliance and Hutchison-Essar (including BPL), Idea is still way behind. Each of its rivals has more than 10 million mobile subscribers.

According to sources, the documentation of the deal with the Birlas and Tatas is yet to be completed. The deal will reportedly be closed within a month or so. However, till such time as the deal is concluded, uncertainty is likely to prevail as there could be higher offer prices from other suitors. The Birlas and the Tatas would however have the first right of refusal for the stake.

Moreover, there could be potential regulatory issues vis-à-vis the Tatas, who also provide CDMA services in common circles through Tata Teleservices. Tata Teleservices has a total subscriber base of 4.5 million, including 1.43 million digital mobile subscribers in 20 circles. This could lead to a repeat of the situation that Idea found itself in not so long ago.

Earlier, the STT-TM combine had to pull out of its proposed deal to buy 47.7 per cent stake in Idea after it failed to get the necessary approvals from the Foreign Investment Promotion Board and the Department of Telecommunications. The consortium had agreed to pick up the stake (including Cingular's 32.9 per cent share) in Idea for a consideration of approximately $390 million. This included $206 million for Cingular's stake. The deal was opposed on the grounds that STT is wholly owned by the Singapore-based Temasek Holdings, which, in turn, is owned by Singapore Telecom (63 per cent), the largest shareholder in Bharti Tele Ventures, with a 28.22 per cent stake.However, the regulators' opinion was that no investor could own more than 10 per cent stake in two companies offering services in the same telecom circle.

Besides consolidating its operations, Idea is focusing on increasing its coverage, upgrading its networks and increasing the number of cell sites in its existing circles. It recently announced its plans to invest Rs 500 million on extending its coverage to 30 new towns in Haryana and on extensive highway coverage from Ambala to Agra through Delhi. The company is also focusing on its unique selling point –­ ensuring customer service through innovation in value-added services. It is the first company to launch next-generation EDGE technology for its Delhi circle and music messaging with a "cellular jockey", "global SMS" in over 540 networks across all technology platforms, and a voice portal "Say IDEA". The company has also achieved the highest percentage in terms of customer satisfaction in the metros and circles B and C, according to TRAI's quality of service parameters.

While it still has a lot of catching up to do vis-à-vis its rivals, Idea is making all the right moves. With the Birlas and Tatas looking to increase their stake in the company, Idea's prospects should certainly improve.