Though the ministerial panel’s approval of mergers and acquisition (M&A) guidelines in the telecom sector are expected to bring much-needed solace to the telecom sector, the additional pricing suggested for spectrum could play spoilsport for consolidation in the debt-laden sector.
On Tuesday, the Empowered Group of Ministers approved the M&A guidelines, which is a step closer to making it a regulation.
The guidelines include raising the cap on the market share of a merged entity in a circle to 50 per cent from the earlier 35 per cent. “Typically, investments would come in only if the sector is profitable. Many operators have sustained losses for quite some time now, and it’s only logical they consolidate…,” said Sanjay Mehta, partner with BMR Advisors, a consultancy firm on M&A and tax.
The guidelines need the Union Cabinet nod to become a regulation.
New norms According to the new guidelines, operators would also have access to 403 MHz spectrum in the 1800 MHz band, compared with 298 MHz of spectrum that was made available in the previous round of auction.
If this entire spectrum is sold at the reserve price, it would add Rs 36,385 crore to the national exchequer’s coffers.
“The M&A guidelines are a step in the right direction with respect to market share allowances, but the requirement for additional spectrum payouts to the Government could be a serious dampener,” said Mohammad Chowdhury, Leader- Telecom at PwC India.
“These guidelines provide an exit route to companies who procured 3G and 4G spectrum in 2010, but have not rolled out the networks yet. Genuine operator level consolidation across the industry will take some time,” he added.
With the guidelines becoming a regulation, the industry expects a number of potential deals to happen in the 12-player Indian telecom sector.
Bharti Airtel, according to industry sources, was in talks to acquire Loop Mobile.
Possible deals According to industry sources, the potential opportunities are Vodafone India and Quadrant Televentures (with operations in Punjab), Idea Cellular and Loop Telecom (Mumbai), Idea Cellular and Aircel.
Tata Teleservices could also consider a partnership with Telenor, and both the companies (already having a partnership through Viom Networks) could consider acquiring Aircel.
The industry also expects a lot of other permutation combinations such as piecemeal acquisition of Aircel among others to take place.
ACTION AT BOTTOM OF PIT “We believe the proposed M&A norms rule out consolidation among the top three operators, while there is opportunity for them to consider regional operators for acquisition. We expect action in the bottom half of the market,” said Hitesh Shah, Director Research (IT & Telecom) at IDFC Securities.
“In the long term, we foresee the Indian telecom market having 5-6 operators with deep pockets competing for the consumer wallet share,” he added.