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New rules make telco mergers tougher

New rules make telco mergers tougher
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First Published: Tue, Apr 22 2008. 11 24 PM IST
Updated: Tue, Apr 22 2008. 11 24 PM IST
New Delhi: Rules for mergers and acquisitions among telecom firms in India, the world’s fastest growing mobile phone services market, were tightened on Tuesday when the government said it would not permit merger among service providers if it resulted in an entity with more than 40% share of the market measured by customers in a licensed area.
The ceiling was earlier set at 67%. India’s department of telecommunications, or DoT, on Tuesday accepted recommendations made by the Telecom Regulatory Authority of India, or Trai, last year. A senior Trai official, who did not wish to be named, said, “The Indian phone market is too big to allow any entity to have over 40% share.”
Also, telecom mergers will not be permitted if the number of service providers in a licensed area—mostly equivalent with states—falls below four, DoT said in a statement.
India’s top three mobile phone service firms—Bharti Airtel Ltd, Reliance Communications Ltd and Vodafone Essar Ltd—have over 150 million of almost 290 million mobile phone subscribers in the country.
The government also plans to introduce what it called a spectrum transfer charge, details of which will be specified later, DoT added.
Tuesday’s guidelines will also prevent new telecom licensees such as Unitech Ltd to be acquired by an incumbent operator any time before three years, setting aside speculation that certain incumbents seeking to acquire scarce radio frequency rights may do so by acquiring the new aspirants.
“Any permission for merger shall be accorded only after completion of three years from the effective date of the licences,” said DoT. The merged entity will be allowed to hold the total wireless spectrum, provided the new company meets the subscriber-linked spectrum eligibility norms mandated by the government.
In December last year, a senior executive of Vodafone Essar, who preferred anonymity, told Mint that his company would explore if more spectrum could be acquired by buying out a new telecom operator.
Experts such as Arvind Subramanian, a consultant with Boston Consulting Group Inc. said the new telecom companies would need at least two to three years in any case to build out operations and a customer base to be able to command a good valuation. “The three-year lock-in is quite fair,” he said.
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First Published: Tue, Apr 22 2008. 11 24 PM IST