Having realised that no real consolidation can take place in the telecom services space unless spectrum trading is allowed, the department of telecommunications (DoT) has now decided to seek a roadmap for moving towards it from the Telecom Regulatory Authority of India. It would also seek fresh recommendations from the regulator on the merger and acquisition guidelines in the context of spectrum trading, government officials said.
Sources said the DoT decided to look at trading in spectrum and drawing up fresh M&A guidelines in this context by seeking vital inputs from the Trai after getting feedback from the industry that the current draft M&A norms were lacklustre and would not be of any consequence. Further, in the recently floated consultation paper on spectrum pricing the Trai has sought the industry’s comments whether trading in spectrum should be allowed, going beyond the specific reference of the DoT.
Spectrum trading recently acquired centre stage when in response to the telecom minister Kapil Sibal’s announcement that the M&A guidelines would be notified shortly, the industry expressed its disappointment that without allowing trading it meant nothing. Vodafone India managing director and CEO Marten Pieters was the first to express his disappointment to FE in this respect.
He said his company was not interested in buying out rival mobile firms but maybe interested in buying specific assets of some mobile firms.
?Consolidation in the industry will be stimulated once spectrum trading is allowed and merger norms are modified to permit buying specific assets of any business instead of the entire company,? Pieters recently told FE. ?I (Vodafone) may just want to buy 3G spectrum in circles where I don’t have these high-speed radiowaves. But current norms do not allow that. Lot of acquisitions are waiting to take place in India, once rules allow you to sell assets you don’t need the merged entity?.
He had said though the new telecom policy has endorsed spectrum trading there has not been any follow-up action by the government so far.
If spectrum trading is allowed, a company like Vodafone for instance can look at acquiring 3G spectrum of another firm in the circles in which it does not have the radiowaves. This would be different from buying out the entire company and merging it with itself where lot of assets would get duplicated.
The draft M&A guidelines prepared by the DoT, which would now be kept in abeyance does not change the scenario much and theoretically also encourages merger only between big and small players as the focus is on market power. For instance, the proposal so far is that a merged entity can hold spectrum up to 25 Mhz and the combined market share of the merged entity should be 35%. If it ranges between 35-60% then the regulator’s approval needs to be taken. The market share of Bharti, Vodafone and Idea stand at 28%, 23% and 19% respectively so the 35% mark would get breached if any M&A happens between them. Approaching Trai will require one to prove that a monopolistic situation would not arise.
