With telecom tariffs at rock- bottom making operations almost unviable, telecom regulator TRAI on Tuesday favoured mergers and acquisitions in the sector that may now see a shake-out.
The entry of nine new players in 2008 made the cost of operations nearly unviable and with TRAI waiving the three-year lock-in period for M&As, new entrants may get to exit at a premium.
The new licencees paid Rs 1,651 crore for pan-India licence, compared to the Rs 14,000 crore bid price being quoted for 3G licence at present.
TRAI's recommendation on pricing and allocation of 2G spectrum and norms on M&As needs to approved by DoT to be made a law.
The regulator on Tuesday recommended ending the restrictions preventing telecom firms from selling majority stakes in the first three years of getting a license. This will help consolidation by allowing mergers and acquisitions in the world's fastest growing telecom market that sees addition of 15 million users a month.
India has 584 million mobile telephone users and there are 15 telecom operators. Such mergers and acquisitions would be subject to the merged entity having a market share not above 30 per cent in terms of subscriber base, as well as adjusted gross revenue. What is more, following such mergers, there must be a minimum of six players for any circle, it said.
"We are clearly saying we should consolidate. We are not mandating consolidation, but facilitating it. Our proposals are clearly in that direction," TRAI Chairman J S Sarma said.
TRAI said post-merger, the total spectrum held by the resultant entity shall not exceed 14.4 MHz for GSM technology In respect of CDMA technology, the ceiling will be 10 MHz. When new licences were issued in 2008, a clutch of new operators sold their stakes to foreign partners at a hefty premium compared to the price they paid for the licences Rs 1,651 crore -- drawing huge criticism from the Opposition parties that licences are under-priced.
TRAI said prior approval of the government was must for merger and it has to be in the same service area.
Swan Telecom sold 45 per cent stake to UAE's Etisalat for $900 million going in for a valuation of over $2 billion while Unitech Wireless sold 67 per cent to Telenor of Norway for Rs 6,120 crore.
"No significant mergers and acquisitions can happen in the telecom sector till we put in place a forward looking regulatory regime," said Sarma.