Editorial: Sensible M&A rules

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SummaryFacilitating larger telco mergers is a good thing

While the government will soon take a call on the base price for the 2G/3G auctions—Trai will submit its comments on the Telecom Commission’s queries later today—the other piece of good news is that the M&A policy, to be announced by the end of the month, is quite progressive. The current policy, with a cap of 14 MHz on spectrum holdings and a 40% market share for the merged entity, effectively ensured none of the big firms like Bharti Airtel or Vodafone could do an M&A with anyone except the tiniest firm. The new policy draft raises the spectrum holding for a merged entity to 25 MHz at the all-India level (it can’t exceed more than half the total spectrum with all firms at the level of each circle in a given band) and also raises the market share cap to 50%—since market share is determined in terms of subscribers and not revenue-market-share, the effective cap can be even higher. Apart from the fact that firms like to merge and acquire, the biggest gain is the significant reduction in costs that arise out of firms holding large blocks of spectrum—with a 25MHz spectrum holding, Indian telco holdings will now be reasonably aligned to those of large international players. Allowing merged firms to hold 2 blocks of 3G spectrum instead of the present 1 block is even more important since, by and large, the next burst of consumer growth will come from the data segment which is what 3G caters to.

Removal of the 3-year lock-in period for an M&A as well as allowing mergers between access providers like Bharti Airtel and internet firms like Qualcomm is a step in the right direction. What has been missed so far, though, is the provision to allow telcos to demerge part of their businesses and then put these up for M&A. A good example of this would be both BSNL and MTNL that have achieved little in their 3G businesses. Both firms would do well to demerge this part of the business and sell it to raise good profits. What will be critical in

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