The collapse of talks between Indian telecom major Bharti and South Africa?s MTN may be a big setback, but come next month and the domestic telecom space would see a lot of activity in terms of mergers and acquisitions (M&A).
Sources said Telecom Regulatory Authority of India (Trai), in its comprehensive recommendations to the government next month, is expected to suggest ways to bring more consolidation in the sector by way of dropping two clauses that restrict telecom M&As. The first one restricts an operator to buy more than 10% stake in another peer within the same circle, while the second clause caps the combined market share of a merged entity at 40% within a circle.
?These norms were formulated to check emergence of monopolies but the Indian market today is quite mature and there?s enough competition with more than seven operators per circle making such fears irrelevant. What is now required is more consolidation. We are reviewing whether these restrictive norms should be in place or done away with,? an official told FE.
After taking charge as the Trai chairman in May, J S Sarma had told FE in an exclusive interview that he was in favour of bringing in more consolidation in the sector. However, at that time Sarma had not said how he plans to bring this about.
Once these two clauses are dropped, the Indian telecom space would see a huge rush in M&A activities. For instance a company like Bharti cannot buy more than 10% in say Vodafone in a circle like Delhi. Although it has the option of buying the company fully and merge with itself, the constraining factor is that the combined market share of the two cannot be more than 40% in the circle. Trai is trying to remove these restrictions so that more consolidation can happen and the scarce spectrum is optimally utilised, the official said.
Department of telecommunications (DoT) had earlier asked for Trai?s views on a government-industry committee report, which called for more consolidation in the telecom space by allowing companies to trade in spectrum and making all 2G spectrum allocation also on the basis of auctions.
Since DoT has already supported the idea and the government also stands to gain as it would get slice in such deals by way of spectrum transfer charges, the Trai recommendation is not expected to face any further hurdle.
Telecom analysts have started articulating the need for a relaxed norm for M&A activities in the country as the current number of 7-8 operators per circle is a world record. Once the new licensees, which are currently in the process of rolling out services become operational, India would beat its own record by having 12-13 operators per circle. ?It is just not feasible by any yardstick. We need to do something,? said a telecom analyst who advises the government on policy matters.