Monday, December 12, 2011

India readies new rules on telecoms M&A : FT


India readies new rules on telecoms M&A
The new, more liberal mergers and acquisitions framework is understood to have been agreed in draft at a meeting of India’s Telecom Commission on Friday, and is set to be confirmed at a further meeting this week. It will provide some relief to a sector that has struggled to get more profit out of its more than 900m users.
Things have become so bad that a delegation of long-time rival chief executives – including Vodafone’s Vittorio Collao, Bharti Airtel’s Sunil Mittal and Reliance Communications’ Anil Ambani – earlier this month trooped in to see Manmohan Singh, India’s Prime Minister, to complain about the country’s changeable and often-contradictory telecoms rules.
In a private letter handed over during the meeting, a copy of which has been seen by the Financial Times, the CEOs claim that the sector has “been brought to crisis point to the extent that the future of the industry is under threat”. The letter pleads for a “stable regulatory and fiscal regime” with no further “midterm surprises” – a barbed reference to the habit of Indian regulators of dreaming up new and unexpected rule changes.
The meeting is understood to have been brokered by Mr Ambani, whose debt-laden Reliance Communications has lost close to half its market value this year, against a backdrop of persistent speculation that he will enter some form of tie-up with his estranged brother and fellow billionaire, Mukesh Ambani.
In common with other groups, Reliance faces a telecoms market that is among the world’s most competitive and confusing. It boasts 12 operators – about twice as many as the norm for a developing market – competing in 22 “circles”, or geographic areas defined by regulation.
Meteoric growth in users over the past 5 years has come despite a dizzyingly complex regulatory set-up and has resulted in an overcrowded and bad-tempered market characterised by weak profits, flat revenues and falling investment. Analysts suggest that before things can improve the half dozen or so smaller operators must either exit or be bought out by larger groups.
On Friday the Telecom Commission, a body bringing together the disparate parts of India’s government, is understood to have agreed draft rules that future mergers could be allowed if the market share of any newly combined company does not exceed 60 per cent, up from the current limit of 40 per cent.
Vodafone, India’s third-largest mobile operator by subscribers, said: “We welcome greater flexibility in M&A rules, although it is not yet clear how the authorities would ensure that these were applied consistently.” Other industry figures, who spoke on condition of anonymity, cautioned that this higher upper limit was subject to further negotiation and could come with complex subsidiary regulations that would limit or delay consolidation.
In a test of the industry’s new-found unity, a range of other issues remain. The regime for spectrum is especially sensitive, given that allegations about its improper allocation lie at the heart of India’s $39bn telecoms corruption scandal – the aftermath of which is still rumbling on inside India’s Supreme Court.
The industry remains firmly united on one issue, however: its frustration with the government. One senior telecoms executive, who asked not to be named, said that even with clarity on merger laws, the authorities were unlikely to avoid the temptation of new charges and fees. “The government does not see that the telecoms industry is struggling. They see it as a golden goose, whose golden eggs can be harvested again and again, until the goose is dead.”

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