eGoM removes upper cap on spectrum in telecom M&As

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Market price for airwaves above 4.4mhz

eGoM removes upper cap on spectrum in telecom M&As
A ministerial group headed by finance minister P Chidambaram has recommended market price for spectrum beyond 4.4 mhz that a telecom company has acquired through an acquisition or a merger.

The group, finalising telecom mergers and acquisitions norms on Tuesday, has done away with the upper cap on spectrum held by a merged entity.

Another of its recommendation is that the merged entity need not pay any spectrum fee up to 4.4 mhz — this will continue to be under revenue sharing.

Beyond this limit, the merged entity will be charged a one-time spectrum fee at market price to be discovered in the January auctions. Further, the merged entity can have a market share of up to 50 per cent in terms of customer base and revenue.

The ministerial group has slapped a three-year lock-in period on spectrum held by the merged entity to ensure there’s no ‘premium trading of airwaves on the sly.’

The government will seek legal opinion on equity consolidation in the merged entity without limiting the mergers to just licences and control of spectrum.

A senior official told Financial Chronicle that the earlier move to impose a 15 mhz spectrum cap in a merged entity stood scrapped.

The recommendations, to be considered by the Union cabinet on Thursday, are expected to trigger mergers and acquisitions in the highly fractured industry with 13 players vying for a share of the market.

The ministerial group has also recommended auction of 403 mhz spectrum in January in the 1800 mhz band. This is much more than the earlier proposal of 298.3 mhz.

The Cellular Operators Association of India director- general, Rajan S Mathews, said, “The group’s recommendations are favourable. Retaining 4.4 mhz under administrative pricing is good. Even retaining the 50 per cent market share limit for a merged entity is a positive.”

However, he said, one must look at other merger and acquisition norms like spectrum trading, sharing and migration to unified licences by existing operators.

Hemant Joshi, head of telecom practice at Deloitte Haskins & Dells, was not impressed with merger and acquisition norms. Joshi said, “Why should a telecom player pay market price for spectrum beyond 4.4 mhz and take the merger route with all the baggage that comes along with the company being acquired? Instead, one would prefer to bid for spectrum in the next round of auctions for expansion.”

Industry officials surmise that the biggest merger that may happen will be of MTS, Tata DoCoMo and Aircel. There have been reports to this effect. If this comes about, the merged company will pose big competition to Bharti Airtel and Vodafone.

Only last week Bharti Airtel chairman Sunil Bharti Mittal hinted that it was in a position to acquire another telecom player as part of its inorganic growth plan in India. The Indian marker was bound to see a churn, he said.

The Telecom Commission on November 6 approved guidelines that allow telecom companies to acquire operators in a manner that the market share of the resultant entity does not exceed 50 per ccent.

“I think four to five, maybe six if you include state operators, is the maximum that the market can have. It means that where we see nine today, the major three or four (service providers) need to consolidate in one way or the other,” Vodafone India’s MD and CEO Martin Pieters said.

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