New Telecom Policy – M&A in India to be Liberal ?

M&A in Indian Telecom SpaceAs per the reported proposed norms, the merged entity would be allowed to have market share (in terms of subscriber base & adjusted gross revenues [AGR]) of up to 50% in a particular circle (up from current guidelines of 35%). The new entity could own up to 25% of the total spectrum allocated in a particular telecom circle and up to 50% of spectrum allocated in a specific band (and 10 MHz in 800 MHz band).

According to the report, the DoT also proposes to allow the merged entity to own two blocks of 3G and/or BWA spectrum (vs one currently) in a specific circle. However, the acquiring company would need to pay market-determined price (to the govt) for GSM spectrum above 4.4 MHz and CDMA spectrum above 2.5 MHz if the spectrum had been obtained at administrated prices.

However, if the spectrum was purchased in the recent (Nov-12 or Mar-13) auctions, the operator would not need to pay any spectrum fee. If the total spectrum of the merged entity crosses the prescribed limit, it would need to be returned to the government within one year. As per the proposed M&A norms, merging companies would not need to clear dues/charges/penalties the government has levied if the matter is sub-judice.

These guidelines could facilitate much-awaited consolidation of the sector. We note that Bharti (~30.8% AGR market share), Vodafone (~23.1% AGR share) and Idea (~15.0% AGR share) hold a ~70% revenue market share and ~55% subscriber market share. As regards spectrum, at least eight to nine players operate in each telecom circle in India, without significant difference in average spectrum holding per operator (with exceptions). Hence, the merger of two operators would be unlikely to breach the “25% spectrum limit”.

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