A major consolidation in the telecom sector could be on the cards. Discussions have just begun between Spice Telecom and Idea Cellular for a possible merger, whose outcome can go either way.

According to top sources, the option of both Spice buying out Idea Cellular as well as the Birlas-owned Idea Cellular buying out Spice are being considered. However, with talks being in the preliminary stages, a source said it would take anywhere between 8 and 12 months before anything could be finalised.

Adding a new dimension, sources told ET that Telekom Malaysia, which holds 49% in Spice Telecom (the BK Modi group holds 51%) is keen to expand its footprint in India and make some acquisitions to expand Spice’s operations. This is because Spice, at present, is limited to just two telecom circles, Punjab and Karnataka, and its expansion plans in the rest of the country have been held up primarily on account of non-availability of spectrum in many key circles.

Last year, Telekom Malaysia had acquired 49% in Spice for $179 million (Rs 733 crore). In June 2005, Telekom Malaysia and Singapore Technologies Telemedia had opted out of the agreement for acquiring a 47.7% stake in Idea Cellular for about $390 million as the government did not clear the deal.

Idea Cellular is also planning to demerge its cellular infrastructure and float it as a separate entity.

Against Idea’s nearly 15 million subscribers, Spice has just 2.8 million subscribers. While Idea is the sixth largest cellular operator after Airtel, Reliance Communications, BSNL, Hutchison Essar and Tata Teleservices, Spice is the eighth largest.

Idea and Spice jointly have a 10.5% market share in India’s 165-million-strong mobile telephony market. If the two were to combine, they would create the country’s fifth largest cellular company.

But these are still early days and it remains to be seen how much headway these merger talks make. Meanwhile, Spice Telecom will go ahead with its IPO. Last week, Spice Telecom received Sebi approval for its Rs 600-crore IPO. The Modis own 51% in Spice, with Telekom Malaysia holding the remaining 49%, but this will fall to about 41% and 29% after the IPO.

Source: EconomicTimes