When there's a face-off between the two most iconic Indian business groups, you can be sure ripples will be created. It's been a few weeks now that the Tata group and the AV Birla group are eyeball to eyeball over India's fifth largest cellphone operator, Idea Cellular, in which the Tatas have a 48 per cent shareholding and the Birlas 50 per cent.

At its core, the impasse between the two is about co-existence and competition. The first wasn't always a contentious issue. The Birlas and the Tatas have been co-shareholders in the company since 2000, ever since Birla-at&t and Tata Cellular decided to merge their operations. The merger saw the creation of a new entity called Birla-Tata-at&t Ltd. (unflatteringly nicknamed 'Batata').

Then, Batata's fortunes saw ups and downs, including an aborted merger bid with Rajeev Chandrasekhar's BPL Communications (now sold to Hutchison Essar) and a phase during which neither the Tatas nor the Birlas seemed certain about what they wanted to do with their not unsubstantial stakes in the company. For the record, back in 2000 and up until 2004, AT&T had a 32.90 per cent shareholding, the Birlas 33.69 per cent and the Tatas 31.69 per cent in the company, which was renamed Idea Cellular in 2002.

WHAT THE BIRLAS ARE ALLEGING

AV Birla Gourp Chairman K.M. Birla Conflict of interest. Tata Teleservices operates in every circle where Idea has operations. Besides, the rules require Tatas to drop their stake in Idea down to 10 per cent from the current 48 per cent. Board not informed. When Tata bought original co-promoter AT&T Wireless' 16.45 per cent stake in Idea by acquiring AT&T Mauritius subsidiary, it didn't intimate this to the board. When AT&T Mauritius was renamed Apex, board wasn't informed either. Business overlaps. When Idea bought out Escotel's operations in three circles (Haryana, Kerala and UP West) and three licences (HP, UP East and Rajasthan) in January 2004, Tatas were a party to the decision. Since Tata Teleservices holds CDMA licences in these very same circles, there is a business conflict.

Things took a different turn in 2004 when AT&T Wireless was taken over by Cingular Wireless and Cingular put its stake in Idea on the block, which the Tatas and Birlas bought in equal proportion. Meanwhile, the Tata group's other telecoms venture, Tata Teleservices, which the group controls and actively manages, was taking off. Beginning life as a basic fixed line operator, Tata Tele took the option to move to the Unified Access Service License (UASL) regime in 2003 and now offers cellular services-CDMA as opposed to Idea's GSM services-in 20 circles including the eight circles where Idea is available. And there lies the rub. Although the Tatas have been more pro-active with their CDMA venture and may see the investment in the GSM venture as a purely financial one, the Birlas view the circle overlaps as an area where there could be a conflict of business interests between Idea and Tata Tele.

Moreover, the Birlas charge the Tatas with non-compliance with the Department of Telecommunications' (DoT) rules, which specify that if a company operates in a circle it cannot also have more than a 10 per cent shareholding in any other cellular services company (in the same circle). The Birlas, therefore, argue that since the Tatas operate a cellular services company, Tata Tele (in which the Tata group has an estimated 91 per cent stake following its recent deal with Temasek), the group should reduce its stake in Idea from 48 per cent to 10 per cent. The Tatas on their part counter this, saying Tata Industries, which is the entity that holds 48 per cent in Idea, only has a little over 4 per cent in Tata Tele, where other group companies, including the group's apex holding company, Tata Sons, holding the balance.

WHAT THE TATAS ARE CLAIMING

Tata Group Chairman Ratan Tata No conflict. The shareholding in Idea is through Tata Industries, which holds around 4 per cent in Tata Teleservices. Besides, the Tatas have asked for time till June 30 to reduce their stake. Not a valid issue. Apex continues to be a promoter of Idea and any change in its shareholding is of no consequence to the DoT. The DoT itself has clarified that promoters are only those companies that have a direct shareholding in the licensee company. Not a non-compliance issue. When Tata Teleservices was granted licences for these circles, neither itself nor Tata Industries nor Idea Cellular was a shareholder or promoter in Escotel. Idea Cellular became a substitute promoter of Escotel in March 2005. Hence, there is no issue of non-compliance.

This, of course, doesn't cut ice with the Birlas who believe that it is the Tatas nevertheless that control Tata Teleservices on the one hand, and have a large stake in Idea, on the other. Hence, there is a conflict of interest. Now, with Idea planning to begin operations in the lucrative Mumbai circle where Tata Teleservices is already an operator, there is a fresh twist to the dispute. When Idea applied for a licence in July last year, the DoT asked for certification that Tata Industries held less than 10 per cent in Tata Teleservices (Maharashtra), a listed entity distinct from Tata Teleservices. With no certification forthcoming from the Tatas, the Birla group recently decided to apply for the licence through a separate group-owned entity.

If the impasse continues, friction points like this can become regular occurrences. With telecoms valuations soaring-recently Vodafone paid $1.5 billion (Rs 6,750 crore) for a 10 per cent stake in Bharti Tele-Ventures and the market capitalisation of the recently listed Reliance Communications Ventures is around Rs 40,000 crore-it may have been an ideal time for the closely held Idea Cellular to go public and list its stock. The fact that Idea posted profits for the first time last year may have made that move even more propitious. But the spat between two of India's most venerable business groups remains a hurdle to that.