M&As in the telecom sector are being further tightened. The department of telecommunications (DoT) has decided that the marketshare of operators after a merger or acquisition should not exceed 30%. At present, the cap stands at 67%. Sector watchdog Telecom Regulatory Authority of India (Trai) recently recommended a cap of 40%.

DoT?s 30% cap on combined marketshare ensures that no large telecom player could acquire another large player. The country?s largest mobile operator, Bharti Airtel, has a marketshare of 31.7% (August 31, 2007). Vodafone Essar?s marketshare stands at 23%, while that of BSNL and Idea Cellular are 20% and 12%, respectively.

Noting that a higher combined marketshare could be allowed, DoT has said ?this is a dynamic parameter and marketshare may increase after (an) M&A, but it may not be possible to de-merge them again?.

What may come as a shock to operators is that the 15-MHz spectrum cap for GSM players in case of merged entities would remain unchanged. Trai had felt this cap should be done away with. However, DoT has noted that not having a cap would ?adversely boost the share price and asset value of the merged entity against the interests of other licensees and has to be discouraged?.

Furthermore, the 10% cross-holding restriction would stay, against Trai?s recommendation that it be increased to 20%?the additional 10% on a case-by-case basis. New licensees would have a lock-in period of three years before any M&A and after that, they would have to meet rollout obligations.

Rejecting Trai?s recommendation that the cross-holding cap be raised, DoT said ?such cross-holding of 20% by two licensee companies in each other in a service area will be to the disadvantage (of) subscribers?. There will be a minimum of four players in a circle after any merger.

Allianz, Spice non-compliant

DoT has started processing the 300 applications it has received from 30 companies for UASLs to start telecom services. BK Modi-led Spice Communications Ltd and Allianz Infratech Ltd have been found net-worth non-compliant.

For UASL eligibility, a company?s net-worth should be Rs 1,380 crore, but Spice?s net-worth is only 1,171.46 crore. Spice, which operates in Punjab and Karnataka, applied for licences for the remaining 20 circles. Allianz Infratech, which applied for 22 circles, has a net-worth of only Rs 600 crore.