Refarming: Telecom consolidation just got more expensive

New Delhi: The Empowered Group of Minsiters (EGoM) on spectrum decided not only on refarming but also on how mergers and acquisitions would happen in the telecom sector in the future.

Telecom Minister Kapil Sibal said after the meeting that in case any telco wants to acquire another telco which was awarded spectrum at the administered price of Rs 1,658 crore, the acquirer will have to pay an auction-determined price for the spectrum it acquires through this transaction. Put simply, this means any future acquisition or consolidation in the telecom industry would become expensive and, in many cases, unviable.

There has been a growing buzz about a CDMA player, which lost many licences due to the Supreme Court judgment of February, being in advanced talks to buy a GSM player. If what Sibal said is actually ratified by the Union Cabinet, then this deal may become rather expensive for this CDMA player.

Similarly, there have been whispers about an incumbent GSM player, which is expected to bid aggressively in the upcoming 2G auctions, also wanting to explore the option of selling out after it acquires pan-India spectrum. Here again, valuation could play spoilsport if auction-determined price is sought from the acquirer.

In a related move, an Economic Times story last week noted that the EGoM has cleared the proposal to relax spectrum sharing rules for mobile phone companies. It has decided that telcos will be allowed to share airwaves after they pay the one-time spectrum charge prospectively for all airwaves beyond the 4.4 Mhz mark.

The EGoM also decided to do away with the provision to levy a special levy on mergers and acquisitions (M&As) in the sector. The story said that EGoM members concurred with the proposal that in view of the introduction of market-based pricing of spectrum, spectrum transfer charges of 5 percent may not be levied on the difference between the transaction price and the market price of spectrum.