(The Economic Times 23rd April 2008)
The government has revised the norms for merger between telecom companies within a circle, making consolidation among existing players more difficult and expensive, and, in the process, facilitating entry by new players that have not acquired a licence so far. Specifically, merger conditions have been made more stringent in four areas: pre-approval by the department of telecom (DoT) is required for any merger; the threshold market share of merged entity beyond which a merger will be prohibited has been lowered from 67% to 40%; a licensee must complete three years of operations before it can contemplate merger; and, finally, the merged entity will have to pay extra for spectrum. Interestingly, the new guidelines deviate from regulator TRAI’s recommendations in two ways. The regulator had ruled out M&As till rollout obligations were met. In the revised guidelines, there is no mention of rollout obligations, they seek three years of operations, and the word acquisition has been dropped. Omission of the word acquisition, according to an industry insider, paves the way for some ambiguity on whether these norms seek to make a distinction between merger and acquisition.
Idea got its licence for nine circles only recently. So, an existing licensee cannot acquire Idea in these nine circles. Other new licensees would also have to look for some suitor outside the group of licensed operators in their circles, if they choose to sell out. However, new entrants in the telecom space can bring in strategic investors, this implies, they can sell a maximum of up to 74% stake to new global majors or other domestic companies that are looking to enter the communications market in India. The government’s objective is to ensure that the world’s fastest-growing telecom market will continue to have over eight operators in all circles in the upcoming future, thus leading to increased competition, according to an official source. However, executives with existing players said the M&A norms will help new entrants, who obtained licences for a mere Rs 1,651 crore, make a quick buck by selling a majority stake to international majors. In the case of existing operators, DoT has said its prior approval is required for any merger and acquisition while also imposing a rider that M&As could only take place only if the combined market share of the merged entity is less than 40% in terms of subscriber base and revenue. This eventually rules out any merger or buyout among the top three service providers in any circle. It means, a Bharti will never be able to buy out a Vodafone or Idea Cellular, or vice versa, nor can a Reliance Communications (RCOM) buy out a Vodafone. However, players like Bharti, Vodafone, Idea and RCOM can buy out smaller players such as Spice, BPL and Aircel.
The government has revised the norms for merger between telecom companies within a circle, making consolidation among existing players more difficult and expensive, and, in the process, facilitating entry by new players that have not acquired a licence so far. Specifically, merger conditions have been made more stringent in four areas: pre-approval by the department of telecom (DoT) is required for any merger; the threshold market share of merged entity beyond which a merger will be prohibited has been lowered from 67% to 40%; a licensee must complete three years of operations before it can contemplate merger; and, finally, the merged entity will have to pay extra for spectrum. Interestingly, the new guidelines deviate from regulator TRAI’s recommendations in two ways. The regulator had ruled out M&As till rollout obligations were met. In the revised guidelines, there is no mention of rollout obligations, they seek three years of operations, and the word acquisition has been dropped. Omission of the word acquisition, according to an industry insider, paves the way for some ambiguity on whether these norms seek to make a distinction between merger and acquisition.
Idea got its licence for nine circles only recently. So, an existing licensee cannot acquire Idea in these nine circles. Other new licensees would also have to look for some suitor outside the group of licensed operators in their circles, if they choose to sell out. However, new entrants in the telecom space can bring in strategic investors, this implies, they can sell a maximum of up to 74% stake to new global majors or other domestic companies that are looking to enter the communications market in India. The government’s objective is to ensure that the world’s fastest-growing telecom market will continue to have over eight operators in all circles in the upcoming future, thus leading to increased competition, according to an official source. However, executives with existing players said the M&A norms will help new entrants, who obtained licences for a mere Rs 1,651 crore, make a quick buck by selling a majority stake to international majors. In the case of existing operators, DoT has said its prior approval is required for any merger and acquisition while also imposing a rider that M&As could only take place only if the combined market share of the merged entity is less than 40% in terms of subscriber base and revenue. This eventually rules out any merger or buyout among the top three service providers in any circle. It means, a Bharti will never be able to buy out a Vodafone or Idea Cellular, or vice versa, nor can a Reliance Communications (RCOM) buy out a Vodafone. However, players like Bharti, Vodafone, Idea and RCOM can buy out smaller players such as Spice, BPL and Aircel.
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