Forget M&A policy, telecom consolidation already shaping up

The government’s move to allow 100 percent FDI in telecom is just the first page of a novel. The real growth story lies in demystifying mergers and acquisition norms that will make it easier for players to acquire and sell spectrum rights separately from the rest of the business.

And even though Telecom Minister Kapil Sibal has promised that the new M&A telecom policy will be finalised by 15 September, smaller players in the market are reportedly already looking to consolidate operation by using each other’s intra-circle roaming (ICR) agreements for 2G voice services.

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An intra-circle roaming pact allows two operators to use each other’s mobile network.The rationale behind it is to consolidate traffic on one site so that everyone can profit from it. In other words, if my service provider does not have adequate coverage in my circle (for example, Mumbai) then it may tie up with some other operator within the same circle which would allow me to use its network in the areas of low coverage. Thus a subscriber of operator ‘A’ would be latched onto the network of operator ‘B’ within the same circle.

With the big three-Vodafone, Bharti Airtel and Idea-occupying a lion’s share of the telecom market, other players have little choice but to share their networks if they want to survive.

According to a report in the Economic Times this morning, Anil Ambani’s Reliance Communication has entered into pacts with Aircel and Loop Mobile to share networks in Mumbai, while Tata Teleservices has a similar pact with Aircel in Bihar.

The alliance will enable customers to use roaming on other partner networks, without any additional cost.

The pacts work as a win-win as it allows players to optimise the use of infrastructure resources and monetise assets.

According to the ET report, Aircel’s network runs 40-60% empty. But the pacts will help monetise at least part of it. Even Tata Tele is estimated to have shut 5,000 towers that were loss-making and substituted them with ICR arrangements with Aircel, while RCom owns 48,000 towers but has access to another 10,000 leased towers due to the ICR pact.

But the battle has gotten even more fierce as the biggies Airtel, Vodafone and Idea have slashed data tariff on 2G by as much as 90% in all circles where they do not have a 3G licence in order to keep their subscribers intact.

Clearly with the new FDI rules in place, one should only expect more competition.

Clarity on the M&A front will give the telecom sector the much needed boost.