Ministers back plan for spectrum fee in telecom M&A deals

By Devidutta Tripathy

NEW DELHI (Reuters) - A ministerial panel on Tuesday approved a plan to impose a fee on telecoms carriers for mobile phone spectrum acquired via a merger with a rival, a senior government official said, a move that could hinder consolidation in the country's crowded telecoms sector.

The panel will recommend to the union cabinet that companies be asked to pay the current market price for mobile spectrum acquired in mergers or acquisitions.

This will apply to spectrum beyond 4.4 megahertz in popular GSM technology-based services, and beyond 2.5 megahertz for CDMA-based services.

India traditionally allocated spectrum for basic mobile phone services at a state-set price of around $300 million. But last year the country switched to an auction-based process after a scandal over permit distributions.

The auction-system has increased the cost of mobile spectrum so that companies might try to get access to spectrum more cheaply by buying a rival carrier.

The new fee will apply if companies that obtained mobile spectrum at the old state-set price change hands. The fee would not apply to spectrum purchased via the new auction system, the senior official told reporters.

The official declined to be named as he is not authorised to speak to media before a decision of the cabinet. India plans to hold its next spectrum auction in January.

The ministers also endorsed a plan to allow telecoms carriers to merge if their combined market share does not exceed 50 percent, he said, which compared with a cap of 40 percent currently.

Mohammad Chowdhury, a telecommunications expert at PricewaterhouseCoopers' Indian unit said the recommendations on combined market share was a step in the right direction.

"But the requirement for additional spectrum payouts to the government could be a serious dampener," he said.

The panel also recommended that a carrier must keep a business for at least three years from the date of spectrum allocation and cannot sell out of it within that period. But carriers can merge with another operator and have a stake in the combined entity.

Apart from firms such as the local units of Telenor and Sistema , which bought spectrum during the past year, most other carriers have completed three years with their current spectrum.

India has said it will relax rules to spur consolidation in the telecommunications sector where a dozen carriers operate. Telecommunications minister Kapil Sibal told Reuters in October that he was optimistic that the new government rules will spur consolidation in the sector.

(Reporting by Devidutta Tripathy. Editing by Jane Merriman)