market share cap for merged telecom entity raised to 50%

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Summary* Telcos allowed to retain two blocks of 3G waves per circle after merger

The department of telecommunications (DoT) has decided to allow an entity formed by the merger of two or more mobile service providers to have up to 50% market share in a circle. Moreover, companies holding 3G spectrum will be allowed to retain two blocks of the high-speed radiowaves per circle in any resultant entity following the merger, according to draft guidelines on M&A finalised by the telecom department.

“We are working on a number of ways in which spectrum can be acquired. Auction is one way. M&A will serve as another way in which spectrum can be acquired,” said telecom secretary MF Farooqui, adding the M&A guidelines will be out within a week or 10 days.

DoT officials also confirmed that the department is studying sector regulator Trai's recommendations on spectrum trading and they should be notified “soon”.

"Taking into consideration the spectrum cap of 50% in a band for access services, transfer of licences consequent to merger of companies shall be allowed where market share for access services in respective service area of the resultant entity is upto 50%," stated the draft M&A guidelines. Earlier, merged entities were allowed to hold only up to 35% in any telecom circle. "For determining market power, the market share of both subscriber base and adjusted gross revenue of licence in the relevant market shall be considered," said the draft rules.

Moreover, the cap for spectrum holding for the merged entity will be 25% of the total spectrum assigned.

However, in case of 3G spectrum, the draft rules state that in case two firms planning to merge have been allocated one block of 3G spectrum each in the 2010 auctions, “the resultant entity shall be also allowed to retain two blocks of 3G spectrum in the respective service area”.

Earlier, rules allowed the merged entity to retain only one block of 3G spectrum while the second block had to be returned to the government.

Companies will have to surrender spectrum after merging if the total holding of the resultant entity crosses the prescribed limit set by the government. For this, companies will get one year.

Farooqui said that since the M&A policy has been vetted by the empowered group of ministers (EGoM) on telecom, it will be finalised at the DoT level.

DoT has also received the Attorney General's comments on any M&A deal involving sale of equity that triggers the mandated three-year lock-in clause. This

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