In a bid to spur M&As in the crowded telecom sector, the government today eased rules by allowing mergers between firms with up to 50 per cent combined market share.
At present, telecom firms are allowed to merge if their combined market shares in terms of subscriber base does not exceed 40 per cent in any of the nation's 22 circles or zones.
Government will determine market share based on both subscriber number and adjusted gross revenue which is earned through telecom services.
The Mergers and Acquisition (M&A) guidelines issued today however stated that a market determined fee will have to be paid if the merged entity was to hold low-priced 4.4 MHz spectrum.
The long-awaited guidelines pave the way for fresh investments through consolidation activity in the industry which has 12 telecom service providers.
The guidelines issued by government today largely focus around spectrum held by companies as there are two set of companies at present - one which hold spectrum allocated at old rate of 1,658 crore and other set which hold spectrum purchased through recent auctions at over 5 times this price.
The rules have allowed only those companies to participate in M&A activity who have either purchased spectrum through auction or paid one-time spectrum fee to bring old spectrum rates at par with latest market determined price.
The M&A guidelines say that acquirers of companies holding 4.4 Mhz spectrum, allocated at old rate, will have to pay to the government the difference between the initial amount (Rs 1,658 crore for pan-India as per 2001 auction) and the market rate determined through the latest auction.
The market rate determined through auction will remain valid for a period of one year. Thereafter, additional price calculated based on prime lending rate of State Bank of India will be added on to determine the market rate.
If companies holding spectrum at the old rate opt for buying another company they will have to submit one-time spectrum fee as bank guarantee to the Department of Telecom
The guidelines further said that the merged entity will be allowed to hold a maximum of 25 per cent spectrum allocated in a service area and 50 per cent in a particular band for telecom services under the rule.
In case of CDMA spectrum (800 Mhz band), held by firms like TTSL, Sistema Shyam and Reliance Communications, the government has fixed the upper limit of the total spectrum holding at 10 Mhz.
A merged entity will be