Market share limit eased in tele M&A rules

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Merged entity can hold only two blocks of 3G spectrum in a circle

Market share limit eased in tele M&A rules
The government on Thursday allowed merger and acquisition (M&A) of telecom service providers with up to 50 per cent combined market share and aggregate gross revenues in a bid to spur consolidation in the crowded industry.

The norms issued by the telecom department said if a merged entity crosses the market share limit in a circle, it would be given one year to it bring down. In doing so, DoT eased the cutoff limit from 40 per cent proposed earlier.

Telecom service pro­viders said the market share limit for a merged entity should have been much higher. Had it been so, it would have triggered several M&As and hastened consolidation in all 22 licence circles, they claim.

The telecom department said the market share norm would be determined based on subscriber base and aggregate gross revenues of the company twice a year i.e. as of December 31 and June 30.

Some industry players said it would be difficult to either maintain or monitor the 50 per cent market share limit set for a merged entity in each licence service area.

An industry official, who preferred anonymity, said the direct impact of these guidelines would be seen on the reported merger talks by Tata Teleservices with Vodafone and MTS.

As per November subscriber numbers, if Tata Teleservices were to merge with Vodafone, the combined user base would be 248 million, which would be well ahead of Bharti Airtel’s 196 million customers. On Wednesday, Airtel claimed that its subscriber base had crossed 200 million.

On the proposed Vodafone–Tata Teleservices merger, the industry official quoted above told FC that the right of first refusal to the Tata’s 59.45 per cent stake in Tata Teleservices rests with its Japanese partner NTT DoCoMo, which owns a little over one-fourth in the company. There were also reports that Tata Teleservices was separately exploring the possibility of a three-way merger with Aircel and Russia’s Sistema to take on the two big nationwide service providers, Bharti Airtel and Vodafone.

DoT has also stipulated that in case the acquired company held spectrum of 4.4 mhz or 2.5 mhz at administered prices, the acquirer will have to fork out the differential amount between the entry fees and market price for the same.

The differential price rule in M&As is currently sub-judice. DoT said merged entities would have to provide bank guarantees equivalent to the differential amounts between entry fees and market-determined spectrum prices till the case is resolved. The merged entity will have to pay the market price for spectrum for the remaining licence period of the acquired company, the guidelines said.

Hemant Joshi, telecom partner with independent consultancy at Deloitte Haskins and Sells, said he was not convinced that the recent winning bid prices for 900 mhz and 1,800 mhz bands in different circles were the right prices for airwaves.

“I am not sure if the recent auction prices were fair market prices, as the bidding happened against the expiry of licences for some players, which had to win the spectrum to remain in business,” he pointed out.

The telecom players are not very keen on paying the one-time spectrum charge payable by a merged entity. The government has ruled that any merged entity holding more than 25 per cent of spectrum in a given service area will have to surrender it. The norms also stipulate that no single firm can hold more than 50 per cent spectrum in a particular band after a M&A deal.

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