Govt issues telecom M&A guidelines

Telecom firms can enter into M&As within the lock-in period that bars new entities from selling equity for three years, but the merged firm should not exceed 50 per cent market share, as per the merger and acquisition guidelines released today.
The lock-in period will, however, apply to the company resulting from the M&A.
The long-awaited guidelines pave the way for fresh investments through consolidation activity in the industry which has 12 telecom service providers.
Some firms have been reportedly eyeing to buy majority stake in Aircel and Tata Teleservices but were waiting for government to release the final guidelines. Both TTSL and Aircel have spectrum allocated at old rate of 1,658 crore.

The guidelines said that acquirers of companies holding 4.4 Mhz spectrum, allocated at old rate, will have to pay to the government the difference between the initial amount (Rs 1,658 crore for pan-India as per 2001 auction) and the market rate determined through the latest auction.
The market rate determined through auction will remain valid for a period of one year. Thereafter, additional price calculated based on prime lending rate of State Bank of India will be added on to determine the market rate.

The guidelines further said that the merged entity will be allowed to hold a maximum of 25 per cent spectrum allocated in a service area and 50 per cent in a particular band for telecom services under the rule.

In case of CDMA spectrum (800 Mhz band), held by firms like TTSL, 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. This rule will check amalgamation of more than two 3G spectrum holding companies.
GSM industry body COAI's Director General Rajan S Mathews said: "We welcome clarity in M&A policy. We now expect 4-5 operators in each circle. However, step up cost on spectrum that was not acquired through auction and lock-in period are matter of concern."

He said that when a company is already paying a market determined rate for spectrum, while acquiring another firm, there should be no lock-in period.
As per the new rules, if companies holding spectrum at the old rate opt for buying another company they will have to submit one-time spectrum fee as bank guarantee to the Department of Telecom.