Essar Spacetel, an Essar Group company, has applied for a unified telecom licence to provide GSM services in seven new circles. Significantly, this is independent of Hutchison Max Telecom Ltd (HMTL) in which Hutchison and Essar had recently consolidated their telecom businesses. HMTL is expected to go in for an initial public offering (IPO) over the next couple of months.

Sources close to the development told FE the application to provide GSM services has been made for the circles of Orissa, Madhya Pradesh, Assam, North-East, Bihar, Jammu & Kashmir and Himachal Pradesh. The objective, they added, was to ensure that the Essar group would independently continue its telecom investments.

The Department of Telecommunications (DoT) will have to award the formal letter of intent (LoI) before Essar can commence the process of rolling out its services. Effectively, then, the Essar group will offer GSM services with the Hutchison Essar combine and also independently. They will not be competing in any of the circles.

The move appears to be a precursor to a nation-wide telecom presence between Hutchison and Essar. The Hutchison-Essar consolidated outfit HMTL provides services in 13 of India's 23 telecom circles. Essar Spacetel will provide services in seven other circles, widely believed to be those circles where Hutch does not wish to operate.

That leaves out just three circles - Maharashtra, Kerala and Tamil Nadu. BPL provides services in these circles.

It may be recalled that Essar Teleholdings (ETHL), the telecom arm of the group, had recently acquired a 9.9% stake in BPL Mobile Communications on its own.

BPL Mobile provides cellular services in the Mumbai metro circle. The purchase of the BPL Mobile stake by ETHL was a part of the strategy by France Telecom to exit its investments in India. The French company held a 26% stake in BPL Mobile. The balance 15.1% stake was sold to a clutch of private equity investors.

The Hutchison-Essar consolidation, on the other hand, is spread across 13 circles in the country. Among them are Delhi, Mumbai, Kolkata, Chennai, Gujarat, Andhra Pradesh and Karnataka. Essar, on its own, was providing services till recently in the Haryana, Rajasthan and Uttar Pradesh (East) circles through group company, Aircel Digilink India Limited (ADIL). These circles are now part of the Hutchison-Essar consolidation. As part of the consolidation, the various partners had transferred all their existing shares to HMTL. In return, they were to receive new shares in HMTL which would become the holding company for the Hutchison Essar operations spread across India.

Interestingly, the seven new circles have very low licence fee (ranging from Rs 25 crore to Rs 45 crore). Hence, GSM service rollout in these states will be relatively less capital intensive.

The combine has just called off its deal to acquire the C Sivasankaran-promoted Aircel which would have strengthened its operations in Chennai and given it a foothold in Tamil Nadu. As part of this consolidation, Essar will hold a 21% stake in HMTL. At the end of February 2005, this combine accounted for 7.64 crore subscribers which translates to a 19% market share in the GSM space, according to figures released by the Cellular Operators Association of India.