Spectrum trading/sharing and M&A norms needed
Now that the government has achieved its immediate objective of ensuring it got the highest possible price in the spectrum auctions, it is time it worked on helping industry recover and consolidate. This is not just important from the point of the industry, it is vital for the country since, the way things are right now, telcos simply do not have the kind of money required to build out networks, especially for data needs and, within this, for video—just 10-15% of the population has access to internet with even half-decent speeds, so unless industry’s health is restored, Digital India will remain a dream. What the industry needs right now is a solution to its poor spectrum holdings, to the hyper-competition that is keeping tariffs very low and to its extreme indebtedness. Sadly, government policy in these critical areas has been on hold for several years.
In February 2014, the department of telecommunications issued guidelines on M&A, critical since India has 8-10 operators as compared to 3-4 in most major countries. The problem, however, is the guidelines were so restrictive, no meaningful M&A have taken place though this would have benefited everyone. For one, for an M&A to take place, the spectrum has to be ‘liberalised’—that is, it has to be won in an auction. In case it has not, and there is a very large chunk of spectrum that falls in this category, telcos have to pay the ‘market’ price to the government first. Since telcos that are not merging or acquiring do not have to pay this price, it makes M&As unviable from the very beginning. Two, the M&A norms on spectrum holding are restrictive since, under the rules, no telco can have either 50% of spectrum in a band or 25% of spectrum in all bands.
As a result of the latter rule, M&As between market leaders like Bharti Airtel and Vodafone is in any case ruled out, but the merger between even a Bharti/Vodafone and an Idea is also ruled out since, in several critical circles, the merged entity will cross the 25% band. Raising this cap to 30-35% will make life easier though it is not clear why a limit should be put in place given there is a sector regulator to keep a check on abuse of dominance. M&As can take place between mid-rung players under the existing guidelines, but these players are so indebted, this doesn’t make much sense.
It is also critical that the government come out with spectrum sharing and trading guidelines since, apart from providing much-needed money to indebted companies—this is also critical for banks which have lent to these firms—this will also release a lot of spectrum that is simply lying idle with telcos like MTNL and BSNL that have a very small customer base relative to their spectrum holdings. No one wants to buy debt-laden firms or their bloated work force, in the case of MTNL and BSNL—once spectrum sharing/trading norms are notified, however, a lot of spectrum can be expected to change hands, providing immense relief to both the buyers and the sellers. If the norms, however, are as restrictive as the M&A ones, it is unlikely the sharing/trading norms will help. Having failed the industry so massively once, it remains to be seen if the government offers industry the chance to recover. Digital India will be the biggest casualty if this is not done.