BackConsolidation in telecom seen unlikely with new M&A norms
Proposed policy says a merged entity cannot have more than 35% market share, limiting opportunities for telcos
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New Delhi: The government’s new policy on mergers and acquisitions (M&A) for the telecom sector, which is expected to be announced this month, is unlikely to present any significant opportunities for India’s top mobile phone operators as the rules are too restrictive, analysts say.
According to the proposed rules a merged entity cannot have a market share of more than 35% in terms of both subscribers as well as adjusted gross revenue.
Further, the entity will not be allowed to have more than 25% of the spectrum available in a service area or circle and 50% of the spectrum in a particular band, according to a department of telecommunications note that was reviewed by Mint. Excess spectrum will have to be surrendered within a year of the acquisition.
Communications minister Kapil Sibal had said last month that the new norms would be announced by 15 October.
The telecom department has, however, removed an earlier clause that said a merged entity with a marketshare of between 35% and 60% would be approved on a case-to-case basis by the Telecom Regulatory Authority of India (Trai).
The new norms are unlikely to lead to any major consolidation as the top three operators, Bharti Airtel Ltd, Vodafone Essar Ltd and Idea Cellular Ltd have market share of 28.45%, 22.96% and 18.62%, respectively.
“At the most there may be some movement in the next level, which includes Aircel Ltd, Tata Teleservices Ltd and regional operators like MTS, Uninor and Videocon," a senior Mumbai-based telecom analyst working with a multinational investment bank said, requesting anonymity as he is not authorized to speak to the media. “M&As between these operators are unlikely to have a major impact on the market."
The new norms are likely to stipulate that the merged entity will have to migrate to the new unified licence for communications services and pay a one-time fee for the spectrum held by the new entity.
The new entity may also have to pay the prevailing market price for the spectrum it holds and will not be allowed to hold more than one block of 3G (5Mhz blocks) or 4G (20Mhz blocks) spectrum.
“Where an acquired company holds spectrum, part of which has been assigned against entry fee paid, the acquiring company... will be required to pay to the government, the differential between the entry fee and the current auction determined price of spectrum, on a pro rata basis for the remaining period of the licence," the note said. “No separate charges shall be levied for spectrum acquired through auctions conducted from 2010 onwards."
The new policy also does not address the issue of spectrum trading. “Unless spectrum trading is allowed there is unlikely to be much movement," said Rajan Mathews, director general of the Cellular Operators Association of India, a lobby group. “That is a critical component."
The M&A policy does not take into account the ground reality in the country, said Hemant Joshi, partner, Deloitte Haskins and Sells. “The policy has to be formulated keeping in mind these ground realities like spectrum trading, sharing and overall efficient usage of spectrum," Joshi said.
In December 2011, the then telecom secretary R. Chandrashekhar had said that the Telecom Commission, India’s highest telecom policy decision making body, had largely approved the telecom regulator’s proposals on mergers and acquisitions rules. These, however, have not been notified as yet.
Bharti, Vodafone and Idea declined to comment.
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