The proposed mergers and acquisition norms could help large incumbent operators to consolidate their footprint by acquiring smaller players. That’s because the new rules permit a merged entity to hold up to 50 per cent market share compared to the earlier proposed 35 per cent.
For example, Bharti Airtel, which currently has a market share of about 22 per cent, can merge operations even with number two player Vodafone, which has 17.78 per cent share of the total subscribers. While that is highly unlikely to happen there are a number of smaller players that want to exit the market and can become potential acquisition targets.
Ajay Saraf, Executive Director, ICICI Securities Ltd, said, “Players like Vodafone and Airtel can do meaningful acquisitions if 50 per cent market share is allowed. Smaller operators have to decide whether they can continue to run the business or sell out.” If market rumours have to be believed, almost all the operators are on the lookout for either buying or selling. For example, Sistema Shyam is believed to have initiated discussion with players including Tata Teleservices and Aircel for a possible buy out. Norway’s Telenor is the other player looking to expand footprint. SingTel has said publicly that it would back any bid by Airtel to acquire another player.
Uncertainty removed
“The M&A rules along with spectrum pricing removes uncertainty. The operators can now make a decision on whether to buy spectrum through an auction or buy an established operator,” said Prashant Singhal, Global Telecom Markets Leader, Ernst & Young.
But there are some dampeners in the proposed policy. The Telecom Commission has retained the rule that the buyer will have to pay the Government the market price for any spectrum the seller holds under the older dispensation of first-come-first-served.
For example, if Sistema Shyam were to acquire Aircel, the Russian player will have to pay the Government for the GSM spectrum held by Aircel. While the DoT has argued that this is being done to ensure operators buy spectrum through auction instead of using the M&A route, industry watchers said that the policy misses the point.
“It’s a deterrent to any significant M&A. The assumption that the spectrum was given for free under the earlier dispensation is false. Operators have been paying revenue share and spectrum usage charge,” said Rajan Mathews, Director General, Cellular Operators Association of India.
Major concern
The other major concern is the policy on spectrum usage charge. While TRAI has proposed a flat fee, the DoT is keen to retain the existing slab system where operators with higher amount of spectrum have to pay a higher revenue share.
So, even though the proposed M&A policy allows a company to hold up to 50 per cent of the total spectrum available in a circle, a higher charge for using spectrum will make mergers an expensive proposition. The Telecom Commission has decided to settle this issue after consulting the Finance Ministry.
“If the existing slab rate is continued then it will make any merger meaningless. There should also be clarity around spectrum trading,” said Saraf.