M&A norms to help consolidation

The Telecom Commission’s decision on mergers and acquisitions (M&A) may pave the way for consolidation between larger companies in the telecom sector.

The decision is to allow M&A between entities with a combined market share up to 35 per cent, and with permission for those with a combined share from this level to 60 per cent. This denotes full acceptance of the Telecom Regulatory Authority of India’s (Trai) recommendations. However, it would not provide any special fillip to the new operators which received licences in 2008. Together, they have a market share of less than seven per cent. Also, they could have been acquired by any of the bigger boys as the current limit for M&A is 40 per cent of the market share.

So, STel, Videocon, Loop and Etisalat DB, for instance, have been looking at an exit policy from the government, which is being worked out.

Under the new rules, in the Delhi circle, it would theoretically be possible for Airtel to merge with Aircel or Idea Cellular, and be considered for a merger with Vodafone. Airtel has 20.51 per cent market share based on Trai data of August 2011, Aircel has 5.40 per cent, Idea Cellular 10.4 per cent and Vodafone 19.7 per cent.

An entity after a merger would be able to hold up to 25 per cent of the total spectrum available with all the operators in the circle.

Ernst & Young partner-telecom practice Amit Sachdeva said, “The decision to relax M&A norms is a step in the right direction, but more clarity is required. It would help existing operators in acquiring a small operator. Even the 25 per cent spectrum limit for a merged entity is a positive step.”

An executive from a leading operator said the new norms would give enough room to big players to merger with another one and definitely pave way for consolidation in the industry. However, the new guidelines to be formulated by Trai will have to be seen before operators start thinking of any big merger.

Currently, according to the rules, the combined entity after a merger can have 40 per cent of the market share and are allowed to retain the spectrum, provided they fulfill the subscriber linked criteria within three months of merger. There is also a three-year lock-in period now.

Communications and information technology minister Kapil Sibal had said the M&A policy would put a minimum limit of six operators, including PSUs — either MTNL or BSNL — in a circle.

Bharti Enterprises Chairman Sunil Bharti Mittal earlier said consolidation in the industry was inevitable and he did not see more than six companies surviving.

The sector has been witnessing low rates and declining revenues in the last two-three years. The average revenue per user as well as the profits of operators has taken a hit due to low rates, which started in late 2008.