The government has started working towards providing an exit route to a host of new telecom operators sitting on valuable spectrum but unable to roll out services. A relaxation in the merger and acquisition (M&A) rules, which would enable these firms to cash out, is among the options being considered.
It?s a chicken and egg situation. In a crowded and competitive market for telecom services, these firms?starved of funds and with little experience of the sector?are finding it difficult to attract subscribers. Since their subscription base is very low, there isn?t a viable business model and this has undermined the firms? ability to raise funds.
The eight new entrants in the telecom sector account for less than 3% of the country?s over 600 million subscribers currently.
According to official sources, these firms are lobbying hard with the department of telecommunications (DoT) for a relaxation in M&A guidelines.
Sources said the options around which the government is working on include, asking these failed operators to return the spectrum to the government and get a refund of some amount of licence fee or come out with liberal M&A norms, which will allow selloff.
The government stands to gain more in the latter case as it would then levy a transaction charge, being the ultimate owner of spectrum. Since new operators have neither subscribers nor network, the only thing in which any incumbent or foreign player would be interested is the spectrum they have.
The spectrum?4.4 Mhz each?is the only precious possession these operators have. On an average, the pan-India licence fee paid by each operator was roughly Rs 1,651 crore.
Sources said if these operators surrender their licences and spectrum, the government can think of returning a certain portion of their money. ?How much and other details need to be worked out since such a move would happen for the first time,? said an official involved in the discussions.
One of the reasons for desperate operators to approach DoT for an exit route is that they want this to be fast-tracked and de-linked from a set of Trai recommendations on which the government is working.
?They realise that the Trai recommendations on 2G spectrum which touch upon M&A as well is fractious and would take a lot of time to get finalised. These operators don?t have the ability to sustain till then,? the official said.
As reported by FE earlier, of the eight applicants who received telecom licences in January, 2008, only two have rolled out services, that too only in some of the circles for which they received licence.
As of January 2010, only two operators?Unitech Wireless and S Tel had launched operations. Telenor of Norway has a 67.25% stake in Unitech Wireless, which has launched services in 8 out of 22 circles while S Tel has launched services in three out of six circles.
This is when the new licensees are required to cover at least 10% of the district headquarters by the end of the first year of being given the licences.
Some companies began their launches later. Loop Telecom, which holds licences for 21 circles claims to have launched services in five, while Videocon Telecommunications has launched in five of the 22 circles for which it has licences.
The share of the new operators in new subscriber addition is dismal. For instance, if one takes the data of June GSM operators added a total of 12.29 million subscribers. Of this, the share of Uninor, Videocon and Etisalat put together was a paltry 1.6 million. If the April-June quarter is taken out of the total addition of around 37.5 million GSM users, the share of Uninor, Etisalat and Videocon put together was only 3.7 million.
Tariff wars which had led some operators make some initial gains last year are not working anymore. In fact, in the last six months tariffs have stabilised with no major cuts and the incumbent operators have increased their revenue market share. The plight of the new operators also got reflected as most of them did not bid for the 3G spectrum recently. Bharti Airtel CEO, Sanjay Kapoor had told FE recently that in no way can 14 operators survive profitably in the market. He said the ideal number is 5 or 6 but even then all of them would not be profitable. Kapoor maintains that consolidation in the minds of the subscribers has already started happening. ?Today with 14 operators the top two have more than 50% market share between them. This was not the case when there were 5-6 operators a few years back,? he said.
The Prime Minister?s Office has also expressed its concern on the poor roll out by the new operators and has sought an explanation from the DoT.