With the end of the lock-in period, new entrants like Uninor, Loop Telecom, Videocon Mobile, Etisalat DB, S-Tel and Sistema Shyam Teleservices (SSTL) will now be free to either sell stakes or look at possible mergers. However, the absence of any pro-M&A policy will prevent telcos from taking any such step, says experts. Also, the fear of cancellation of licenses of some of these new telcos, given their failure to meet the rollout obligations, makes the bet even more risky.
The current regulatory environment does pose challenges in the way of M&A activities. We have a long-term ambition in the market with a business plan based on organic growth. However, we will of course evaluate a good opportunity if it makes business sense and the regulatory environment on M&A makes it feasible, a Uninor spokesperson said in a statement.
The Telecom Regulatory Authority of India (TRAI), in its 2G spectrum recommendations last year, had suggested that subscriber and revenue market share of two telecom entities that merge should not exceed 30% from earlier 40%. The total spectrum cap of the merged entities was reduced to 14.4MHz for GSM and 10 Mhz for CDMA from earlier 15Mhz, requiring payment of one-time spectrum charges and spectrum transfer charges, making consolidation an expensive proposition for the telcos.
Rajiv Sharma, associate director, head-media & telecom, HSBC Securities said that the Indian telecom sector needs a new telecom policy, a US style regulatory structure (a single body of experts assuming policy decisions), encouragement of facilities based competition, spectrum road map and transparency in the process of future spectrum allocation. We believe meaningful sector consolidation is still a distant prospect, said Sharma in a recent note.
Apart from policy and regulatory framework, the truth is that there are no buyers for new operators. There is a fear that they might lose licences and are now in the list of tainted operators. There is also a valuation mismatch as these operators had received licenses at cheap price and are looking to make a killing by selling their stake, said an incumbent operator.
Arvind Subramanian, partner & director, BCG said that the sector has an appetite for M&A and telcos are scouting for partners to seal a right deal.
However, anomalies in the 2G recommendations should be sorted out first. Valuations are also high but a buyer will not typically shell out more that $300-$1000 per subscriber, said Subramanian.