Telekom Malaysia is likely to gain management control of Spice Communications with the promoters, the Modis, either exiting completely or retaining a marginal stake.
Telekom Malaysia is expected to buy the Modis' 40-per cent stake in Spice and merge it with Idea later. The Malaysian company, which has a 39 per cent stake in Spice, will then end up as a shareholder in Idea.
Promoters of Spice Communications Ltd, the country's seventh largest mobile phone company by subscribers, are in three-way discussions involving partner Telekom Malaysia Bhd, Japan's NTT DoCoMo Inc and local firm Idea Cellular Ltd for the stake sale, sources said.
Spice Communications wants to scale up operations to compete more effectively with bigger rivals such as Bharti Airtel Ltd, Reliance Communications Ltd and Vodafone Essar Ltd, but is unable to do so under present circumstances.
While Etisalat of UAE and Japan's NTT DoCoMo could be interested parties, Spice Communications chairman BK Modi said he was open to Telekom Malaysia increasing its stake to 74 per cent in the company.
Telecom Malaysia partners Etisalat and NTT DoCoMo in some markets.
Merger talks between Idea and Spice broke down last year over valuation differences. Idea had then valued Spice at $700 million and was willing to go up to $1 billion but Spice wanted the value to be upped to $1.3 billion.
Idea has been allotted spectrum in the 11 circles where it does not operate, and is readying plans to roll out mobile services in them. It is set to become a pan-India operator by 2009.
Spice has a presence in the Punjab and Karnataka circles where Idea is not present. While Idea has been allotted spectrum in these two circles, a full-fledged roll-out will take more than six months. A merger, on the other had, will give Idea a strong foothold in the two circles with high average revenue per user.
Spice requires further investments to expand its network and diluting its shareholding is the only way of pumping money into the company, which reported Rs1,200-crore debt at the time of listing last July.
The merged entity will also be the fifth-largest telecom company in terms of mobile subscribers (over 28.5 million) after Bharti, Reliance Communications Vodafone and BSNL and ahead of Tata Teleservices, which has 25 million subscribers.