Telecom industry seeks mergers and acquisitions policy revision
July, 13th 2015
The telecom industry wants the regulator to take steps to revise the mergers and acquisitions policy to facilitate consolidation in an intensely competitive sector and help cut costs, improve services and reduce debt.
"The industry strongly feels that Telecom Regulatory Authority of India (Trai) should initiate a suo motu consultation on M&A (mergers and acquisition) policy with all stakeholders to enable a comprehensive review of the current guidelines," Rajan S Mathews, director general of the Cellular Operators Association of India, told ET. The COAI represents top companies such as Bharti Airtel, Idea Cellular and Vodafone India.
The GSM Association, the world's top telecom body, also voiced similar concern, saying the industry is looking for liberalised norms that could create a suitable environment for consolidation.
According to companies, consolidation will lead to efficiencies of scale and allow operators to reduce costs and ease decisions for potential investors as well as improve service offerings. These would eventually lower the industry's debt, which is estimated at Rs. 2.5 lakh crore. Competition has hurt the financials of operators, leaving them with huge debt, the COAI executive added.
The industry says the current guidelines are unlikely to encourage consolidation because of spectrum pricing norms. If an acquired company holds spectrum that was allocated by the government, the airwaves would have to be valued at market rates and the difference paid. Other curbs such as lock-in period, 50% market share limit and 25% spectrum cap will discourage the larger operators from merging with each other, Mathews said.
Current guidelines practically rule out the big three Bharti Airtel, Vodafone India and Idea Cellular from striking a deal among themselves. The clause, however, is seen to be allowing smaller operators to combine.
"Due to the absence of industryfriendly policy, no M&A activity took place during the last 10 years," Mathews said. Recent availability of nationwide mobile number portability has added to the competition in voice and data segments, which have resulted in the average realised rate per minute in India falling below base tariffs, the telecom lobby group said.
With an average revenue per user of Rs. 118 per subscriber per month at the end of December 2014, as per TRAI data, the Indian telecom sector rakes in onefourth of the worldwide average, which is the lowest globally. Mathews said five to six companies operating in each circle would be an ideal market structure and would help service providers streamline their offerings. "On an average, there are three to four players in global markets, while several telcos operating within each telecom circle make spectrum fragmented that eventually results in poor quality of services," GSMA India head Sandeep Karanwal said.
The telecom department prefers to deal with guideline-related issues on a case-by-case basis.