DoT readies final M&A policy draft

Broadening the scope of mergers and acquisitions of telecom service providers, the department of telecommunications has proposed to keep the market share ceiling of the merged entity at 50 per cent from the 35 per cent proposed earlier.

The move comes after a few rounds of revision of the draft M&A guidelines for the sector during the past few months.

The M&A policy for the sector is expected to be finalised before the next round of auction, scheduled for January 8, 2014.

According to the final draft, dated October 17, DoT said as the cap for spectrum holding is 50 per cent in a band for access services, transfer of licences consequent to compromise, arrangements or amalgamation of companies shall be allowed where market share for access services in respective service area of the resultant entity is up to 50 per cent.

The country’s top three telcos by subscriber base -- Bharti Airtel, Vodafone India and Idea Cellular -- together hold 54 per cent market share.

All the private telcos together control 88 per cent of the cellular market.

Earlier, the Telecom Commission had said the cap would be 35 per cent.

The Telecom Regulatory Authority of India had earlier recommended allowing between 35 per cent to 60 per cent.

In its earlier draft, DoT had mentioned it could consider merger proposals that result in more than 35 per cent market share on a case-to-case basis.

It has been decided in-principle to allow trading of spectrum, says the final draft.

DoT has, however, retained the clause that would make the companies pay for spectrum beyond a prescribed limit if it was acquired after paying the entry fee and not through auction.

If a transferor company holds a part of spectrum which (4.4 MHz for GSM and 2.5 MHz for CDMA) has been assigned against the entry fee paid, the transferee (acquiring) company or the resultant merged entity, at the time of merger, will be required to pay to the government the differential between the entry fee and the market-determined price of spectrum, pro rata for the remaining period of the validity of the licence, according to the revised draft.

However, there will not be any separate charges for spectrum acquired through auctions from 2010.

But, as the auction-determined price is valid for a year, the government will add the prime lending rate of the State Bank of India to the previous auction-determined

price after a year to determine the final price.

The merged or resultant entity post merger will be entitled to hold only one block of 4.4 MHz of spectrum in the GSM band and 2.5 MHz in CDMA band for the entry fee the companies have paid earlier.

This is likely to benefit incumbents such as Bharti Airtel and Vodafone, if the merger happens between two operators which got spectrum by paying the entry fee.

In such a case, the merged entity will be able to retain 4.4 MHz spectrum for the entry fee paid earlier.

On the other hand, if a new operator, which has bought spectrum through auction, buys an incumbent operator, which had bought spectrum by paying entry fee, the resultant entity will have to pay the differential price for 4.4 MHz.

So, for new operators, the cost of the entire spectrum holding is auction-determined.

But, in two incumbents merge, the companies get the benefit of retaining 4.4 MHz at a much lower cost.

Also, if two operators which have acquired spectrum through auction get merged, they will not need to pay anything extra.

The final draft said the cap for spectrum holding for the merged entity will be 25 per cent of the total spectrum assigned and 50 per cent of the spectrum assigned in a given band, by way of auction or otherwise, in the service area concerned in the case of the 900 MHz and 1,800 MHz bands, and the ceiling for the 800 MHz band will be 10 MHz, it noted.

Post merger of the 3G and broadband wireless access spectrum holders, the resultant entity will be allowed to retain two blocks of spectrum, if both the companies merging had acquired only one block of spectrum each through auction in 2010.

DoT has also maintained its stance that companies will have to surrender spectrum, post merger, if the total holding of the resultant entity crosses the prescribed limit set by the government.

For this, companies will get one year and the merger of licences will be restricted to the same service area.

The merged entity will also have to migrate to the new unified licencing regime.

It also said companies will get one year to transfer various licences in different service areas in case of a merger or acquisition.