A panel of ministers has 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 Cabinet is expected to meet shortly to ratify the changed rules.
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 single-technology 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. Dual-technology holders such as Reliance Communications and Tata Teleservices were allocated two blocks of start-up spectrum against an entry fee — a chunk of 2.5 MHz for CDMA technology and another block of 4.4 MHz for GSM. 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 in January. That amount of spectrum would be worth around Rs.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.
The industry said India's market can at best accommodate five to six players. These guidelines will provide an exit route to companies who procured 3G/4G spectrum in 2010 but have not rolled out networks as yet, said Mohammad Chowdhury, leader, telecom, PwC India.
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%. Among the smaller companies, Tata Teleservices has a 7.3% share, Aircel 7.26%, Uninor 3.72%, Sistema Shyam Teleservices 1.10%, Loop Telecom 0.33% and Videocon Telecommunications 0.37%.
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 Cabinet is expected to meet shortly to ratify the changed rules.
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 single-technology 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. Dual-technology holders such as Reliance Communications and Tata Teleservices were allocated two blocks of start-up spectrum against an entry fee — a chunk of 2.5 MHz for CDMA technology and another block of 4.4 MHz for GSM. 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 in January. That amount of spectrum would be worth around Rs.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.
The industry said India's market can at best accommodate five to six players. These guidelines will provide an exit route to companies who procured 3G/4G spectrum in 2010 but have not rolled out networks as yet, said Mohammad Chowdhury, leader, telecom, PwC India.
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%. Among the smaller companies, Tata Teleservices has a 7.3% share, Aircel 7.26%, Uninor 3.72%, Sistema Shyam Teleservices 1.10%, Loop Telecom 0.33% and Videocon Telecommunications 0.37%.
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