Telecom M&A norms may pave the way for consolidations

The long-awaited guideline is expected to pave the way for fresh investments through consolidation activity in the industry.

New Delhi | Updated: February 21, 2014 5:36 am

Prospects of Tata Teleservices and Aircel getting offers for a buyout are now real. The government on Thursday released mergers and acquisition (M&A) guidelines for the telecom sector that clears the way for consolidation among the telcos.

The guidelines say, companies looking at M&As will have to ensure that the market share of the merged entity remains below 50 per cent in all circles in terms of spectrum assigned as well as subscriber base.

“In case the merger or acquisition or amalgamation proposals results in market share in any service area (s) exceeding 50 per cent, the resultant entity should reduce its market share to the limit of 50 per cent within a period of one year from the date of approval of merger or acquisition or amalgamation by the competent authority,” says the M&A guidelines issued today.

The norms add that to determine the market share, subscriber base and adjusted gross revenues of licensee in the relevant market shall be considered.

In the case of CDMA spectrum (800 MHz band), held by firms like Tata Teleservices, Sistema Shyam and Reliance Communications, the government has fixed the upper limit of the total spectrum holding at 10 MHz. A merged entity will be allowed to hold a maximum of 2 blocks of 3G spectrum in a service area.

Telecom firms can enter into M&As within the lock-in period that bars new entities from selling equity for three years. The lock-in condition bars telcos from transferring equities within three years of buying spectrum from an auction. The lock-in will apply in respect of new shares that might be issued in respect of the resultant company.

The long-awaited guideline is expected to pave the way for fresh investments through consolidation activity in the industry, which has 12 telecom service providers.

While, Bharti acquired Loop Mobile’s subscribers and assets in the Mumbai circle for Rs 700 crore, firms are also interested in buying majority stake in Aircel and Tata Teleservices but were waiting for the release of the final guidelines.

Both companies have, however, denied they plan to exit the sector. Analysts do not see full benefits coming out of these guidelines.

“Consolidation is the need of the hour. M&A guidelines may not provide full benefits of the consolidation in terms of costs especially of spectrum,” said Deloitte Haskins & Sells’ Partner Hemant Joshi.

Guidelines

The norms add that to determine the market share, subscriber base and adjusted gross revenues of licensee in the relevant market shall be considered.

In case the market share exceeds 50%, the new entity should reduce its market share cent within one year from the date of approval of merger.

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