NEW DELHI: A panel of ministers on Tuesday approved crucial changes to the rules on mergers and acquisitions in the fragmented telecom industry, raising the cap on the market share of a merged entity in a circle to 50% from 35% earlier.
The rule change – which would now potentially allow top operators such as Bharti Airtel and Vodafone India acquire smaller rivals, or smaller operators sign deals with each other – was viewed positively by an industry desperate for consolidation. The sector is just emerging from a bruising price war amid cut throat competition, but still has about 10 to 12 players in some of the country’s 22 circles.
“The M&A rules have been approved,” Communications Minister Kapil Sibal told reporters after a meeting of the empowered group of ministers, headed by finance minister P Chidambaram. The Cabinet is expected to meet shortly to ratify the changed rules.
“This is a step in the right direction and we are largely pleased with the decisions,” said Rajan Matthews, the director general of COAI, the industry lobby body representing GSM operators such as Bharti Airtel, Vodafone and Idea Cellular. Under the new guidelines, an operator will be entitled to only one block of spectrum which had been allotted at an administrative price, or without an auction process, Sibal said. The merged entity would need to pay the market price for any additional bandwidth beyond that one block.
This implies that if a dual-technology holder acquires a singletechnology operator, or vice versa, the resultant entity would eventually have three blocks of spectrum and would have to pay a market price for two blocks.
While the three-year lock in period clause before a sale of equity for a license holder continues, the telecom department (DoT) will seek legal opinion on whether telecom operators can merge within that period. A merger would entail an equity dilution and not a sale of equity.
The panel also decided that a total of 403 Mhz of spectrum be auctioned in the 1800 Mhz band in the auctions scheduled for January. That amount of spectrum would be worth around . 36,000 crore, as per the price cleared at the previous EGoM meeting. That meeting couldn’t clear the M&A rules due to lack of time.
On Tuesday, the government has also decided to allow a merged entity to hold up to two blocks of 3G and broadband wireless access (BWA) spectrum as against one block each currently. It has also decided to retain the spectrum cap of a merged entity at 25% of total airwaves assigned for access services and 50% of the bandwidth assigned in a given band, by way of auction or otherwise, in the concerned service area. “The 50% market share move is very positive and should help consolidation, though the payment for excess spectrum could be an irritant,” said Hemant Joshi of Deloitte Haskins and Sells. “They made more spectrum available and reduced artificial scarcity, which is also a good thing”.
According to September data, Bharti Airtel has a 22.21% share of users, Vodafone India 17.87%, Idea Cellular 14.61% and Reliance Communications 13.35%.
ET had previously reported that Tata, Aircel and Sistema are in talks to explore a three-way merger while Vodafone India and Sistema have recently said they want to take part in industry consolidation but current rules are preventing them.
(Source: The Economic Times, December 4, 2013)