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Sibal Says M&A Norms For Telcos Need To Be Liberal

11 April, 2011

Merger and acquisition rules in the Indian telecoms sector should be relaxed, the telecoms minister said on Monday, a move that would help consolidation in the crowded market.

Kapil Sibal did not explain how the regulations would be eased, but said the number of players in each telecoms zone should not fall below six, including the state-run operator.

Under current rules one company is not allowed to hold 10 percent or more in two competing operators in a telecoms zone. Also, new licensees are not allowed to sell out and exit within three years of operations.

When two operators merge their combined revenue or subscriber share is not allowed to exceed 40 percent of the total revenue and subscribers in that zone.

Analysts have called current telecoms M&A rules restrictive and have been expecting the government to relax these norms to facilitate mergers and acquisitions in the 15-operator market.

In some telecoms zones, 10 to 12 mobile operators compete with each other for a bigger share of the market leading to a brutal price war that weighs on the margins and profitability of operators.

“M&A guidelines need to be liberal,” Sibal told reporters at a press conference as he was outlining broad contours of a new telecoms policy that will be finalised this year.

India is overhauling its decade-old telecoms policy in a bid to make the world’s second-largest market for mobile phone services more transparent after the sector was hit by a multi-billion-dollar telecoms licensing scandal.

India’s most recent telecoms policy was framed in 1999, when the sector was dominated by the state monopoly and when few imagined the country would rapidly become the world’s fastest growing market for mobile phone services.

Fifteen operators, including units of Vodafone , Telenor and Etisalat , serve nearly 800 million users and about 19 million more each month.

Sibal also said as part of the new policy the government will delink the allocation of telecom licences from mobile spectrum that now comes free with the licences. The government also plans to ask companies to pay for spectrum based on a market-driven mechanism, Sibal had said in January.

The telecoms ministry is yet to decide on the pricing mechanism for 2G spectrum and a panel has been set up to draft a possible national spectrum act, Sibal said.

The telecoms sector regulator has proposed to the government steep increases in the prices of 2G spectrum, but the telecoms ministry is yet to accept the proposals.

The proposed increases in 2G spectrum prices have drawn criticism from top operators Bharti Airtel and Vodafone who could pay hundreds of millions of dollars more if the regulator’s proposals are accepted by the ministry.

Sibal said telecoms licences should be renewed for 10 years compared with 20 years currently, and proposed regular audit of spectrum usage. He said spectrum sharing should be allowed among operators on a conditional basis.


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Sibal Says M&A Norms For Telcos Need To Be Liberal

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