The telecom regulator has floated a consultation paper, asking stakeholders to suggest ways to simplify and speed up approvals for merger and acquisition proposals in the telecom sector that has already seen rapid consolidation amid brutal price competition over the last two years.
The paper, floated on Thursday, follows a request from the Department of Telecommunications (DoT), in June, which said that in many merger proposals, entities have filed petitions before the Telecom Disputes Settlement Appellate Tribunal (TDSAT), seeking to quash and set aside certain conditions imposed upon them by DoT guidelines on M&A. This has resulted in uncalled for delays in mergers being taken on record, as the TDSAT has granted stay to the operation of some such conditions.
“In view of the above, this consultation paper provides the background information and seeks inputs of the stakeholders on reforms required to be made in the existing guidelines on Transfer/Merger of Licenses to enable simplification and fast tracking of approvals,” Trai said in the paper.
The consultation paper further acknowledges that over time, some clauses may have become “redundant”, while some may have been noticed to be “ambiguous and demand clarity”. Thus, what was required was simplification and fast tracking of approvals as proposed under the National Digital Communication Policy.
Thus, the 18-page paper while posing four questions, highlights that there is a need to have a merger and acquisition policy framework which facilitates M&A activities and at the same time ensures effective competition in the sector.
The paper though comes at a time the telecom industry has already shrunk to three private sector players – Bharti Airtel, Vodafone Idea and Reliance Jio – from eight in late 2016, as competitive pressures forced some smaller operators to exit, and others to merge with each other. This leaves little scope for further fresh M&A in the sector, say sector experts.
The three recent major M&As in India: Vodafone India-Idea Cellular, Airtel-Telenor India and Airtel-Tata Teleservices consumer mobility business – all took over a year to complete, and even now, have some related legal cases pending.
The main bones of contention in the M&A rules of 2014 are paragraphs 3(i) and 3(m) which mandate the merged entity to pay to the government a one-time spectrum charge (OTSC) for transfer of airwaves which were acquired administratively and not through an auction.
The clause 3(i) further said that in case of judicial intervention on the issue of OTSC, the merged or the acquiring entity must give a bank guarantee of an amount equivalent to the demand raised by the DoT, till the case is resolved.
The TDSAT had ordered DoT to take the merger of Tata Teleservices’ consumer mobility business with Bharti Airtel on record, after partially staying the government’s order of raising an OTSC demand of Rs 8,300 crore on the telco. The tribunal asked Airtel was asked to pay up just Rs 644 crore, after which the merger should be deemed complete. DoT is expected to appeal the TDSAT order in the SC, shortly.
In the Vodafone Idea merger case, TDSAT last year asked the DoT to return bank guarantee worth Rs 2,100 crore towards OTSC to the telco, after the carrier won a case against the government in the tribunal. The DoT then appealed in the Supreme Court, which has asked the telco why it should not submit the bank guarantee since it was a prerequisite in the M&A guidelines. The matter is still being heard.
“While it’s (Trai paper) a positive move on the part of the regulator, this alone will not help the telecom sector which is suffering from a structural problem. The sector is struggling with debt, falling average revenue per user and hyper-competition. We need a comprehensive strategy to cure the sector from very bad health,” said Hemant Joshi, technology, media and telecom leader at Deloitte India.
The paper also asks whether mandatory access to MVNOs (Mobile Virtual Network Operators) should be provisioned in the DoT M&A guidelines to address the competition concerns.
“In its letter dated 16th November 2018, VNOAI (Virtual Network Operators Association of India) has, inter-alia, provided a description of the international practices to avoid cartelization and to sustain the competition by mandating MVNOs/VNOs to the merged entity. In order to sustain competition in the market, VNOAI has suggested to impose a commitment on the merged entity to set aside 20% of wholesale capacity for MVNOs on Mobile Bitstream Access (MBA) basis,” Trai said.
Source: Economic Times