Telcos with up to 35% market share can merge

The Telecom Commission on Monday made some key policy changes. While it favoured auction of 2G spectrum in future, it permitted spectrum-sharing between operators and allowed mergers and acquisitions between players with a combined market share up to 35 per cent.

It also cleared a proposal of a uniform licence fee of eight per cent for operators in two phases over the next two years, which will substantially reduce the financial burden on telcos. The current licence fee stands at 6-10 per cent.

While the commission was of the view that a one-time fee should be charged from operators for holding spectrum beyond 6.2 MHz, a final decision on the method will be taken by the government.

The proposal of auction of 2G spectrum in future was in line with a demand by GSM operators. The spectrum-sharing move could help operators embroiled in the 3G roaming pacts issue (Bharti Airtel, Vodafone and Idea Cellular) get relief.

After a five-hour meeting of the commission, DoT (Department of Telecommunications) secretary and commission chairman R Chandrasekhar said, “We have by and large accepted the M&A norms recommended by Trai... Imposition of one-time fee cannot be ruled out. But, the government has to take a final call on this one-time fee.” He said there was no decision on the formula for a one-time fee on existing telecom players.

Trai (Telecom Regulatory Authority of India) had recommended mergers between two entities with a combined market share up to 35 per cent. Mergers in case of a combined share of 35-60 per cent could be considered case by case. For a combined share of 60 per cent, mergers could not be allowed.

DoT would ask Trai for guidelines on M&A norms in case of a combined market share of 35 per cent or more, Chandrasekhar said.

The imposition of a one-time fee will impact big players such as Bharti Airtel, Vodafone and Idea Cellular and they will have to shell out Rs 15,000-17,000 crore to hold spectrum beyond 6.2 MHz.

DoT’s internal committee had, however, accepted Trai’s views on pricing of 2G spectrum beyond 6.2 MHz at Rs 4,571 crore/MHz. Trai had recommended a price for excess 2G spectrum linked to the 3G price.

The commission will send all these decisions to communications minister Kapil Sibal. Subsequently, these will go to the Cabinet.

Consolidation in telecom is the need of the hour as there are 12-14 players in the sector with low tariffs, declining revenues and margins. Under the present rules, a combined entity can hold 40 per cent market share but there is a three-year lock-in period. Many new operators are under financial strain and looking for ways to exit the sector.

New telcos such as STel, Videocon, Sistema Shyam (MTS), Unitech Wireless (Uninor), Loop and Etisalat DB account for only 6.38 per cent of the market. Some of them have asked the government for an exit policy, the norms for which would be determined by Trai.