DoT finalises M&A guidelines; formal announcement shortly

New Delhi: The government is close to approving a new merger and acquisition (M&A) policy for Indian telecom service providers that proposes to allow arrangements or amalgamations that would have a market share of up to 50 percent. This crucial change is apparent from the latest draft of the guidelines, which are set to be announced shortly.

The M&A norms have been in the works for quite some time now after the Cabinet gave an in-principle approval earlier this May. However, there has been much back and forth since then to finalise these norms.

CNBC TV18 learns that the latest draft now spells out a crucial amendment with respect to market share over what had been announced on 15 February, 2012. Accordingly, “arrangements or amalgamations of companies shall be allowed where market share for access services, in a service area, of the resultant entity is up to 50 per cent”.

The earlier decision, taken by the Telecom Commission on January 13, 2012, had stipulated that a merger would be allowed up to a market share of 35 per cent through a simple procedure.

It is here that the draft guidelines seem to make a very crucial amendment, by saying that the Telecom Commission had only taken note of the part that deals with higher market share. The note says: “TRAI recommendation for allowing merger between 35 per cent and 60 per cent of market share was only taken note of by the Telecom Commission without breaching the spectrum cap on the basis of the detailed constant criteria.”

The implication of this noting is not very clear due to the manner in which it has been worded, but when read with another clause related to the total spectrum holding in a circle, it seems that the DoT is pushing for a higher market share level for M&A’s.

If this is what is finally announced, larger deals would become possible and benefit the more established operators who have a higher number of subscribers as well as spectrum holdings.

The guidelines propose to specify that the spectrum in a circle with a merged entity cannot exceed 25 per cent of the total spectrum allotted for access services and 50 per cent of a particular spectrum band.

Excess spectrum beyond the limits will have to be surrendered within a year and no refunds shall be given for this. The TRAI’s definition of significant market power shall apply in all M&A and telecom companies will have to pay the market rate for spectrum holdings that were not acquired through an auction process.

The guidelines are expected to be released within the next fortnight. The Union Cabinet had earlier this May given in-principle approval to the norms.