M&A in telecom allow for easier mergers -Governance Now

M&A in telecom allow for easier mergers

New M&A rules favor the telecom sector, allow combined entity

GN Bureau | November 8, 2013

The new merger and acquisition (M&A) rules for the telecom sector have permitted a combined entity to have a market share in terms of subscribers.

According to a report in Business Standard today, the share has been raised from an earlier 35 per cent. According to the report, the circles in which such a merger would now be possible include Andhra Pradesh, Delhi, Mumbai, Gujarat, Haryana, Kolkata, Maharashtra, Punjab, Karnataka and Tamil Nadu. The report said that the government would now permit merger even if the market share were higher if the merging companies agree to bring it down according to government norms.

The report said that in Mumbai, the top two telecom companies have a 43 per cent share; in Delhi, 45 per cent. The market share of lowest two, range from one per cent in Uttar Pradesh (West) to around 20 per cent in Assam. In Delhi, the smallest two have far less than 10 per cent; in Mumbai, 15 per cent. Currently, the number of companies in each circle is around six to eight, offering scope for consolidation, said the report.

The report said that favourable rules aside, M&As would also depend on many other factors. One that could easily dampen the deal is the government’s decision that an acquirer has to pay the market price for buying into an incumbent company, which has got spectrum bundled with the licence at an administered price. ?

Another reason, said the report, would be that by acquiring a company which has spectrum bundled with it, the acquirer now has to pay spectrum usage charge (SUC), which will go up from three per cent to eight per cent.

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