New Delhi: The telecom regulator has raised questions over the sale of Loop Mobile India Ltd to rival Bharti Airtel Ltd , citing possible violations of rules on licensing and mobile number portability (MNP), saying that under MNP rules, subscribers must be allowed to choose which operator to port to and cannot be “ported out" involuntarily.

Also, with this deal, the government stands to lose a substantial amount as porting fee, said the regulator.

On 18 February, the country’s largest wireless operator Bharti Airtel had announced the ₹ 700 crore acquisition of Loop Mobile, which operates only in the Mumbai telecom circle. As part of the deal, Loop would transfer its subscribers to Bharti Airtel, as well as all active infrastructure, approvals and licences. This includes Loop’s 2.9 million subscribers in Mumbai and 2,500-plus cell sites, raising Bharti Airtel’s subscriber base in India’s financial capital to seven million.

The announcement was followed by a note to the Bombay Stock Exchange (BSE), where Bharti Airtel is listed, that the two firms had signed a definitive agreement, on 20 June.

However, a recent letter from the Telecom Regulatory Authority of India (Trai) to the secretary, Department of Telecommunications (DoT) seems to throw a spanner in the works.

“On examination of the proposal of M/S Loop, the Authority is of the opinion that the proposed transfer will be against the present licensing terms and conditions and will also contravene the Telecommunications Mobile Number Portability Regulations 2009 (MNP)," the letter dated 10 June, reviewed by Mint, said. “Such an agreement also undermines the spirit of merger and acquisition guidelines. Therefore, the proposed transaction does not appear to be in line with the existing regulatory and licensing framework."

One of India’s oldest telecom operators which started as BPL Mobile in 1995, Loop Mobile is majority-owned by the Dubai-based Khaitan family. A separate entity, Loop Telecom, was allocated licences and spectrum for the rest of the country in January 2008, but these were subsequently cancelled by a Supreme Court verdict on 2 February 2012, which struck down a total of 122 licences. Loop did not bid in the subsequent auctions and hence stands to lose its Mumbai licence—along with spectrum—that expires on 29 November.

The Trai letter points out, “Loop’s proposal to transfer its subscribers to Airtel violates the spirit of the MNP regulations regarding freedom to a subscriber to choose network of its choice."

The subscriber must be informed that the company is shutting shop, and has to port out voluntarily, the letter said.

Trai also refers to the porting fee paid to the MNP service provider (MNPSP). Rules say that a fee of ₹ 19 is charged for every porting customer. Loop’s proposal to transfer 2.9 million customers means a revenue implication of about ₹ 5.5 crore, on which the MNPSP must pay 1% revenue share to the government.

Trai also mentions the customer acquisition form to be verified by telcos before activating a number. It is unclear whether Airtel will re-verify all new subscribers and who will be responsible if any discrepancy is found later.

“Loop’s subscribers have largely stayed for a long time, something uncommon in the Indian telecom sector. The high number of postpaid subscribers and subsequent stickiness has translated into a relatively higher ARPU (average revenue per user) for the telco," said a Mumbai-based telecom analyst with a multinational brokerage firm, who did not want to be named.

“Bharti is not only gaining these quality subscribers from the deal, but is also coming in competitive distance of market leader Vodafone in a lucrative Mumbai market. If the subscribers are given the option to move to any other operator, and a large enough number of them choose Vodafone, then Bharti would stand to lose both positives that come from the deal. Bharti is mainly buying the subscribers," he said.

Bharti and Loop declined to comment for this story.

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