Inter-telecom M&As on cards : ET

NEW DELHI: The communications regulator is planning an overhaul of rules governing the telecom sector, considering changes that could facilitate consolidation in India's crowded and intensely competitive mobile phone market.

Among the issues that the Telecom Regulatory Authority of India (Trai) is contemplating are changes that will allow mobile phone firms to buy each other out and trade in wireless spectrum, officials aware of the plans said.

Trai wants to make its recommendations — which will address all outstanding issues in the sector and lay out a roadmap for the future — by December 2009 so that the new policy can be put in place before the end of the fiscal year in March 2010, an official with the regulatory agency said. The plan to loosen rules is being conceived in the backdrop of nervousness about the prospects of the telecom sector, whose sheen has been fading amid price wars and concerns about the ability of phone firms to sustain revenue and profit growth.


“The entire process is aimed at calming industry fears that the Department of Telecom and Trai, in addition to looking at consumer related issues such as tariffs, are also concerned about the survival and profitability of the operators,” a Trai official told ET.

Trai is also examining the utility of a rule that prevents promoters of new telecom companies who were given licences last year from selling their stakes and exiting these ventures. Furthermore, the regulator will reconsider its stand favouring a cap on the number of telcos that are allowed to operate in a circle.

A Trai official said that it will also identify all available radio frequencies and the timeframe by which these will be available to operators, including the methodologies for allocation of this scarce resource.

“This information is vital for operators as it will enable them to plan their network rollout on a long-term basis. The methodology for future allocation of airwaves will also remove current uncertainties that are weighing down the sector," the official observed.
In the past week, telecom shares have been beaten down in the stock markets as analysts cut earnings estimates for mobile phone firms and advised clients to sell. The five listed telecom firms -- Bharti Airtel, Reliance Communications, Idea Cellular, Tata Teleservices and MTNL -- have lost over Rs 54,000 crore in market value during this period.
While India boasts of the fastest-growing telecoms market in the world, adding between 12 million and 15 million new customers every month, the average revenue per user, a measure of the profitability of the operators, has been falling constantly. The country's cellular base expanded by 50% to over 450 million users from 2008 to 2009, but operators' revenues went up by a mere 10.7% during this period.

The Trai review has been mainly initiated in the wake recommendations by a panel set up by the government to resolve the controversy over the allocation of spectrum. The committee had asked the government to modify its policies to allow consolidation in the industry, while also opposing a three-year stock sale ban. It wanted all telcos to be allowed to buy and sell spectrum and pay a fee to the government


Existing regulations make M&As near impossible because a telecom company cannot hold more than a 10% stake in another company that has operations in the same circle. Besides, telcos cannot buy out their rivals that have operations in the same states as current rules do not allow operators to have more than one licence in a circle.

Besides, the telecom department recently introduced a three-year lock in clause aimed at preventing owners of companies which acquired telecom licences in early 2008 from making windfall profits. Last year, M&A rules had been tightened to cap the market share of a merged entity - both in terms of subscribers and revenue -- at 40% from 67% earlier. A series of riders were imposed which made it impossible for operators to retain spectrum in the merged entity and a new clause added requiring telcos to get government permission before they enter into mergers.