The recommendations made by the Telecom Regulatory Authority of India (Trai) on Tuesday, tweaking the existing norms for merger and acquisitions, will limit consolidation in the Indian telecom market, believe industry experts.
While the total spectrum cap of the merged entities has been reduced to 14.4MHz for GSM and 10 Mhz for CDMA from earlier 15Mhz, telcos will find consolidation an expensive proposition as they will need to make one-time payment of spectrum charges and spectrum transfer charges. However, replacement of rollout obligations by new rollout norms, with thrust on rural coverage, may encourage exits by some new players.
?We are awaiting further clarity on spectrum sharing. Payment of one-time fee at the current level for a spectrum beyond 6.2mhz for the combined entity comes as a dampener to the sector. This is a harsh step and can delay consolidation in the market,? said Prashant Singhal, telecom industry leader and partner, Ernst & Young.
Trai has also suggested that subscriber and revenue market share of the combined entity should not exceed 30% (from 40% earlier), thus preventing Bharti Airtel and other big players from riding the consolidation wave. ?These recommendations will make consolidation difficult in the near term. It will only encourage consolidation of smaller valuation among the regional players as large incumbents are ruled out,? said Bhavesh Gandhi, an analyst with IIFL.
It further mentioned that the relevant market for determining the market share will no longer be classified separately as wire line and wireless but as the entire access market.
?The M&A recommendations by Trai will prevent meaningful consolidation in the Indian telecom market. Removal of three year lock-in clause is a good move but will hardly have any impact on the sector,? said Rajiv Sharma, an analyst with HSBC Securities.
The telecom regulator has also stated that no M&A activity will be allowed if the number of service providers reduces below six. Spectrum sharing has been permitted in the same service area which will be given for a maximum period of five years. However, spectrum sharing will be allowed only between operators who do not have more than 4.4MHz/2.5MHz (GSM/CDMA) of spectrum.
?On sharing, both the parties will have to pay spectrum usage charges on the combined spectrum to the government. However, spectrum sharing will not be permitted among licensees having 3G. In our view, most of the recommendations will have a negative impact on incumbent GSM operators,? according to a report by Ambit Capital.