Amidst the controversial sale of stake by two new telecom operators, Swan and Unitech, at a huge premium, the Telecom Regulatory Authority of India on Thursday recommended a three-year lock-in period for stake sale by companies, which have recently got licences, in a bid to prevent them from making windfall gains overnight.

". . . the main objective of Trai has been to recommend measures to block the unearned gains arising from transaction in stakes of promoters particularly when the value of spectrum is not getting correctly reflected in the entry fee," Trai said in a statement.

New telecom licencees tend to sell stake as they get start-up spectrum (radio frequency) bundled with the licence and demand huge premium in the market.

There should be a lock-in of the equity share capital of promoter(s), whose net-worth has been taken into consideration for determining the eligibility for grant of UAS (Unified Access Service) licence, for a period of three years from the effective date of licence, it added.

Last year, the Department of Telecom had suggested that existing telecom licensing norms be amended and a three- to five-year lock-in be imposed on the sale of equity of promoter(s) in new entrants, including Swan, Shyam, Unitech, Loop Telecom, S Tel and Datacom, which were all given licences in early 2008.

The DoT referred this proposal to the telecom regulator. On the issue of additional share capital, the regulator Trai said, "the licensee companies/their holding companies by way of private placement/public issues should be permitted in accordance with statutory provisions (Sebi and Companies Act) subject to the condition that during the period coinciding with the lock-in period on sale of promoters equity, the equity of the promoter(s) shall not fall below 10 per cent of the total aggregate".

Besides, the management control of the licensee company shall be governed by the terms and conditions of the licence agreement.

Trai has, however, permitted the promoters to sell their equity share even during the lock-in period with prior written approval of the licensor (DoT) and on fulfillment of roll out obligations.

"This is subject to the condition that 50 per cent of the profit earned on sale transaction of promoter(s) equity shall be retained in the business as a special reserve and utilised for telecom network expansion only, while the balance shall be transferred to the Licensor," Trai said.

The profit on sale of such shares is defined as the difference between sale value/agreed value of equity shares on the date on which the transfer of such shares take place and their face value on the date of application of the telecom licence.

Some of the new entrants have already signed deals with foreign telcos for stake sale.

For instance, Swan offloaded 45 per cent stake to the United Arab Emirates' Etisalat for $900 million, while Unitech divested up to 60 per cent stake in its telecom venture to Norway's Telenor for $1.1 billion. Also, S Tel has sold 49 per cent stake to Bahrain's Batelco for about $225 million.

The new recommendations also sought to introduce the definition for promoters in the licence agreement and make it mandatory to disclose the details with complete break-up of 100 per cent of equity and net-worth of the licensee company, including that of promoters on the effective date of licence.

The licensee company has also been asked to inform the DoT of any change or dilution in the stake of promoters' share in the total equity share capital within two days of such change taking place.

A certificate from the company secretary and statutory auditors needs to be filed within 15 days from the date of transaction, it added.

"In these recommendations, the attempt has been to maintain a level-playing field, ensure efficient utilisation of spectrum and transparency in the system while fostering growth in telecom sector," it said.