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DoT plans to relax merger and acquisition guidelines
March, 18th 2011

Kapil Sibal-led Department of Telecom is planning to relax merger and acquisition norms for the Indian telecom sector so significantly that it will leave only around six operators in any service area. At a recent conference organised by Goldman Sachs , the minister was heard saying each operator would have at least 10 MHz of spectrum, or radio airwaves, at its disposal, according to several industry participants who didn't want to be named. The DoT will release these proposals as part of the first phase of the New Telecom Policy 2011 consultation in April. A DoT official said, the Department was on schedule to release a progress report on the agenda Sibal had set out by the end of this month.

However, some members of the telecom industry are sceptical about how much of merger and acquisition norms' relaxation the government will be able to deliver. Sibal became Minister of Telecom under trying circumstances. In November, the then telecom minister , A Raja, was forced to resign on account of the 2G spectrum allocation scam. Raja is currently under arrest as the Central Bureau of Investigation is trying to establish the scale of the scam. Sibal was assigned the portfolio to implement change and ensure that regulations became fair, transparent and conducive for the telecom industry.

At the conference, Sibal also said that the DoT was working on a structure to ensure investments made by a company would be protected in case of an acquisition. While this is a positive for small or new operators like Uninor, Videocon's Datacom and Sistema Shyam , it is confusing for potential buyers. Large existing operators that include Bharti Airtel and Vodafone already have sufficient infrastructure, and would not be willing to reimburse companies with capital expenses as part of the acquisition. An analyst tracking the sector said, "It will make acquisitions too expensive, which is the case at present also."

In October, ET had reported that once norms are relaxed, Vodafone, NTT DoCoMo - through Tata Teleservices - and new international operators waiting for entry into the Indian telecom market were key potential acquirers. The telecom scam may have deterred new entrants, but the other two may still buyout smaller players for the sake of spectrum, an investment banker said. Earlier this year, Kumar Mangalam Birla, chairman of Aditya Birla group that owns Idea Cellular , had said that Idea may also turn into an acquirer in the long run, as it certainly isn't up for sale.

Stringent M&A restrictions had been imposed on the telcos a few years ago to prevent new players, who had got pan-India licences and spectrum at a flat fee of Rs 1,651 crore, from selling out at huge profits.

Last year, the telecom regulator issued a new set ofM&A guidelines that were criticised by some of the big telcos as these recommendations effectively shut them out of theconsolidation process. At the start of his tenure as telecom minister, Sibal set out a 100-day plan in which he said the government would come up with a New Telecom Policy. He said it would address 15 key issues, including spectrum fees, licence renewals, licence conditions and M&A norms. The Telecom Regulatory Authority of India recently published a recommendation to charge incumbent operators for airwaves over 6.2 MHz.

The recommendation drew dramatic opposition from telecom players. Attendees of the conference said Sibal assured he would not accept the fees proposed by the Trai but would discuss with industry leaders and arrive at a suitable price for the spectrum. Earlier Sibal also moved to cancel licences of certain operators who were reportedly given licences out of turn or did not meet network rollout conditions. The process is still on.

NBFC credit to tower cos classified as infra loan: Reserve Bank

Telecom towers firms will now be able to raise funds from non-banking finance companies or NBFCs with the RBI granting "infrastructure status" to loans extended by NBFCs to these companies. This will allow NBFCs that lend to tower companies to raise tax-free bonds, borrow from overseas through the external commercial route, raise long-term finance from banks and issue long-term debentures to insurance companies.

In a circular issued late Friday, the RBI has included 'telecom towers' also as an infrastructure facility for availing credit facilities. In telecom sector, earlier, loans given to service providers alone were treated as infrastructure loans.

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