Telecom policy mum on M&As as DoT, Trai differ on spectrum consolidation

The draft National Telecom Policy, 2011, unveiled by telecom minister Kapil Sibal on Monday was silent on a key issue: Mergers and acquisitions. The reason seems to be the telecom department?s unhappiness with the M&A guidelines recommended by sector regulator Trai.

The day Sibal announced NTP, DoT wrote to Trai stating that the regulator needed to come out with an M&A policy, that is ?simple and easy to implement with minimal conditions necessary to ensure a balance between consolidation, ensuring competition and protecting consumer interest?.

The department expressed surprise as to why the regulator has proposed different caps for spectrum for standalone operators and merged entities. For instance, as per Trai recommendations, operators like Bharti Airtel can hold a maximum spectrum of 10 MHz. However, if Bharti merges with another operator, it can hold a maximum of 14.4 MHz. The DoT isn?t convinced that the cap should be different in the two cases and has therefore asked for a review.

?Trai may review the recommendations on consolidation of spectrum with respect to conformity with the provisions of Competition Act, especially those relating to market dominance,? DoT told Trai.

The spectrum cap is quite essential for the industry from the consolidation point of view. Today?s scenario is such that there can be no M&A between a big and small operator, which is required to bring about the much-needed consolidation in the sector.

Since the DoT has referred the matter back to Trai for reconsideration, the regulator has 15 days? time to review its earlier stand on the matter. If it chooses to stand by its earlier recommendation, DoT is free to go ahead with what it feels is best to bring about liberal M&A norms for the sector.

Sibal has earlier said that the sector needs a liberal M&A policy to drive consolidation because the Indian market has become overcrowded with around 12 players per circle. This has led to tariff wars and deep losses.

The draft NTP unveiled on Monday will be finalised by December after getting feedback from stakeholders. Thereafter, with regard to specific proposals, recommendations will be sought from Trai.

Among others, the NTP draft had also talked about an exit policy for operators who don?t find their services viable and want to bow out. However, details were missing. Trai has called for cancelling 74 licences of companies which may want to exit. Most of these licences also face litigation and investigation by the Central Bureau of Investigation.