Trade Articles

The government has revised norms and regulations for merging & acquisition (M&A) between telecommunication companies within a same circle. Declaring the guidelines and regulations, the Department of Telecommunication (DoT) said that prior approval for merger of telecommunication companies is necessary. It is emphasize that the total market share after merging should not exceed to more than 40% in terms of both subscriber base and revenue. Prior it was held at 67 per cent. It has been made clear that no merger would be allowed unless and until there are minimum four service providers left after such merging process.

The government's revised norms and regulations concerning to merger has tightened the merging and acquisitions between telecommunication companies in the circle. From now consolidation between telecommunication companies within same circle would have means facing difficulty and high cost also. Idea has recently acquired license only for 9 circles. Therefore, it is not possible for an existing licensee to get the Idea in these nine circles. Similarly other licensees if they want to sell, needs to search for some other suitor which should be outside the purview of group of licensed operators in their circles. This new step from the government side has opened up a new gateway for new players, which would have till now facing lots of troubles in absence of any license.

The new government regulations are more stringent and left less room for air to pass. Less flexibility is allowed while designing all four phases - for any merging pre consent of government is required to take, the market share of merging entity beyond which any merging will not be allowed, has been brought down from 67% to 40%, before contemplating any merging process it is imperative that the license must go from through 3 years of operation and last the merged entity is required to pay extra amount for every spectrum.

The new norms issued are somewhere deviated from the TRAI's regulations. The TRAI had ruled out merging and acquisition procedure unless and until rollout recommendations were not full filled. But in the revised guidelines issued by government for merging process, nothing has been mention in respect of rollout obligations. It is kept silent for it. Now a clause has been inserted which have made license operation of three years obligatory. In new guidelines issued by the government 'acquisition' word has been dropped. The removal in the recent issued guidelines will somewhere create ambiguity to the extent that it will not be clear as whether these norms are specifically for merger or acquisition.

The regulations are looking as a pill of relief for new entrants. As now they can bring strategic investors, which means they can sell maximum 74% stake to all those new global companies or domestic entities which are keen to make entry into the India's fastest growing telecommunication sector. Earlier existing telecommunication players purchased new entrants for reducing spectrum crunch. But now all new entrants who have received license in recent years, can be merged or purchased by others only after January 2011.

The new issued guidelines also makes it clear that ‘merger of licenses shall be restricted to the same service area’. It means if an operator has its services only in eastern regions it can't undergone into merging process with another telecommunication company who is offering services only in Himachal Pradesh and Punjab. Further it clears that no buoyant or merging process can be taken place among top 3 service providers. It makes clear that as long as these new norms are into operation, Vodafone can never be able to purchase Bharti or Reliance and vice versa, nor can ever the Idea Cellular purchase Vodafone. However, such big companies- Reliance, Bharti, Vodafone, Idea Cellular can purchase small players like Spice.

The DoT also explicitly mentioned out that the spectrum transfer charges are needed to be pay in case of any merging between existing telecommunication companies. The amount which will be paid is decided by government. However, if number of service providers falls below 4 in circle during process then no merging will take place.

The government's motto behind issuing new principles and guidelines is to ensure that one of the fastest growing telecommunication sector in near future will continually to have more than 8 operators in circles. This step in turns bolster competition and helps in earning more bucks. It will also lead to optimum utilization of resources.