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Flaws in DoT's M&A norms: TRAI
June, 05th 2008

 NEW DELHI: The ongoing standoff between department of telecom (DoT) and telecom sector regulator Trai has intensified further. Trais legal team has now pointed out that the merger guidelines announced by the DoT in April 2008 has several loopholes that can be challenged in the courts.

While Trai had issued recommendations for mergers and acquisitions in the telecom space, DoT while announcing the policy had dropped the word acquisition. This had led to some ambiguity on whether these norms seek to make a distinction between mergers and acquisition and resulted in several telcos seeking clarifications from the DoT on this issue.

Trai chairman Nripendra Misras communication to the DoT on the merger policy comes even as both department and the regulator are involved in a bitter standoff over allowing foreign communication majors and new domestic players to bid for 3G spectrum in the upcoming auctions. While the DoT and the finance ministry want new players to be allowed to bid, Trai has refused to subscribe to this view. Instead, Mr Misra went a step further and irked the DoT further by asking the finance ministry to drop its demand for a global auction.

 Mr Misra in his latest communication to the DoT has said that the ministry in its policy, should not have drooped the term acquisition as there were clear cut differences between merger and an acquisition. A merger can happen when two companies decide to combine into one entity or when one company buys another. An acquisition always involves the purchase of one company by another, Mr Misra said while also adding that under the companies act, a merger required the approval of the jurisdictional High Court.

The Trai chairman has also pointed out that while the regulator had proposed that telcos be allowed to have up to 20% stake in a competing operator in the same circle, the DoTs new merger policy had failed to take this into consideration. Instead, the retained the 10% clause as per the earlier policy.

The DoT in its merger policy had also brought about another major deviation from Trais recommendations. While the regulator had said that M&As must not be allowed until both companies met the strict rollout obligations, there is no mention of this in the DoTs guidelines. Instead, the DoT introduced new norms which said that companies would have to complete 3 years of operations before they are allowed to merge with an existing telco.

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