The Reliance Communications' deal to buy cable operator Digicable has come under the scanner of the information & broadcasting ministry over the issue of cross-holding rules.
Cable and DTH companies cannot hold more than 20 per cent stake in each other.
In July last year, RCom had announced the formation of a new entity, Reliance Digicom, through acquisition of Digicable in an all-stock deal. The deal has got the go-ahead from the high court.
Reliance Digital TV, the DTH arm of the Anil Dhirubhai Ambani Group, internet protocol TV and broadband services which are part of RCom were to come under Reliance Digicom along with the cable TV business of Digicable.
Jagjit Singh Kohli, managing director and chief executive officer of Digicable, said the ministry was scrutinising the deal. "We have abided by the rules.
The deal has been structured in such a way that there is no cross-holding, either directly or indirectly. The I&B ministry is looking at our submissions."
The ministry had earlier looked into the structure of the Sun TV group as well as the Zee group as both are present in cable distribution, DTH and broadcasting.
The deal has been structured in such as way that private equity firm Ashmore will own 28 per cent in Reliance Digicom, a company called Stellar Holding will own 10 per cent (through which Kohli will own his stake), while RCom will hold the rest.
Reliance Digicom is expected to have a subscriber base of 15 million.
This means it will be one of the largest distribution and broadband companies in Asia. Digicable has 10 million subscribers while Reliance Digital TV has 3.5 million subscribers.
Analysts said RCom's aim was to increase its average revenue per user. Buying Digicable would take its presence to 15 million homes where it would push its telecom services also, they said.
The deal will also lead to integration of IPTV services with telecom and television. The group expects a lot of growth in this segment.
Established in August 2007, Digicable is one of the country's largest cable TV service provider.
It is promoted by Kohli, along with Yogesh Shah, one of the pioneers of the cable TV and broadcasting industry.
Kohli helped set up WinCable for Hathway Cable and Datacom Ltd, India's largest multi-system operator.
He also founded ETC Networks, which was later acquired by the Essel group.
The group appointed him as managing director for its MSO arm -- Wire and Wireless (India) Ltd, or WWIL. Kohli quit WWIL in 2007 to set up Digicable.
Digicable has a strong presence in Punjab, Uttar Pradesh, Madhya Pradesh, Rajasthan, Chhattisgarh and West Bengal. It competes with Hathway, Hinduja-promoted inCable, Den Networks and Citicable.
Reliance's DTH business is, however, smaller than Dish TV and Tata Sky, and competes with Sun Direct, Videocon and Airtel DTH.
The Ficci-KPMG Report 2011 said the number of cable and satellite households in India grew 14 per cent to 108 million. India has 32 million DTH subscribers.