Panel backs M&A in telecom

A committee set up to resolve the controversy over allocation of airwaves or spectrum to telecom operators asked the government to modify its policies to allow consolidation in the industry, while opposing a three-year stock sale ban on promoters of companies that acquired telecom licences last year. The communications ministry and telecom regulator Trai had proposed the lock-in period to keep out non-serious players eyeing quick profits. The committee said, instead of imposing a ban on sale, the government should modify existing policies to allow larger operators to buy new entrants to fulfil their spectrum requirements. While suggesting several changes in India’s telecom M&A norms to allow consolidation, the committee criticised the current policy for leading to fragmentation of the sector by allowing about 15 players per circle. All telcos should be allowed to buy and sell spectrum and pay a fee to the government, the panel said, adding that the country should adopt the internationally-accepted auction system for issuing additional airwaves to telcos. ET had reported on April 24 that the committee would recommend auctions for all future spectrum allocations. The committee comprises representatives of the government, telecom regulator Trai, telecom technology experts and industry executives. The committee admitted that some players who received spectrum at a fixed fee may sell it or merge with another company making huge profits without rolling out a network. “Such gains can be moderated by levying a spectrum transfer or merger charge on all such transactions. Allowing such moderated gains is a small price to pay for moving to a market-based mechanism for spectrum allotment,” it said in its draft report, which was submitted to the department of telecom on Friday. The market should be allowed to determine the optimum number of operators by facilitating spectrum transfer and merger, the report said. Currently, India follows a controversial practice of allocating spectrum based on companies’ subscriber base, and is the only country in the world that follows this method. The report said that only the start-up spectrum, which is the minimum amount of radio frequencies that is required to launch mobile services, should be given for free for existing telcos. All subsequent allocations should be only through auctions, it said. The committee has recommended a flat fee for radio frequencies allocated to telcos since January 17, last year, the date on which the committee was set up. But, this one-time fee will be determined by the upcoming 3G auctions. For instance, if Vodafone Essar has been awarded 2 units of radio frequencies in Delhi & Mumbai after January 08, it will have to pay a fee equivalent to what the same amount of airwaves fetched during the 3G auctions. As per the current policy, all telcos share 2-6% of their annual revenues with the government as a fee for using the radio frequencies allotted to them. The committee said this fee should be a flat 3% irrespective of the quantity of radio frequencies that is held by a telecom company. The committee also refused to endorse demands from certain sections of the industry that all existing operators pay a one-time fee for the excess spectrum they hold in order to ensure a level-playing field with new entrants which only have start-up spectrum. The committee felt that that the government need not worry about ensuring an absolute level-playing field between licensees who entered the market at different points in time. “Variable pricing of resources for entrants at different times happens with natural resources like land for industrial development as well. Early or late entry comes with a set of advantages and disadvantages,” the report said. The committee said auctions can be held at regular intervals where telcos get airwaves in blocks of 1 MHz each. It also said that the current cap where GSM operators can hold a maximum of 15 MHz and CDMA players 7.5 MHz be done away with. Instead, it proposed an alternate methodology where a telco can take part in auctions as long as it does not hold more than 25% of the total spectrum available in that state or circle. This implies, the cap will be different for each circle as the availability of radio frequencies varies from state to state. Companies that enter the industry in the future the license will not come bundled with start-up spectrum, and these companies ‘would have to go to the market even for their initial airwaves, recommended the committee.

Source: Economic Times

No M&As on competition panel's plate

The Competition Commission of India (CCI) will not take up local as well as foreign mergers and acquisitions immediately, as it looks to fine-tune its merger regulations before assuming the role of a full-fledged regulator. However, the commission, which will be operational in the next few days, will take up cases of anti-competitive practices, cartelisation and abuse of dominance, as the competition law allows the government to notify its various provisions in phases, said a CCI official, who asked not to be named. The commission got its third member on Tuesday and a fourth member is expected to be sworn in on Wednesday, taking the quasi-judicial body to its full strength. CCI’s revised regulations on mergers and acquisitions —combinations, in legal parlance—will make the application of competition law more rational by excluding from regulation the deals which do not adversely affect competition but are covered by the asset-turnover criteria. The idea is to further fine-tune the merger regulation drafted earlier by CCI during the tenure of its former member and acting chairman Vinod Dhall. Considering its impact on corporate deals, the full commission, chaired by former World Bank executive director Dhanendra Kumar, will do some more consultation with the corporate world before finalising it, the official said. Competition law says that any deal where the combined entity meets an asset-turnover criteria has to be vetted by the regulator. This implies that an insignificant acquisition by a big company, which does not impact competition, too has to be vetted by the regulator. Based on suggestions from the corporate world, the draft merger code prepared by Mr Dhall sought to prescribe individual asset and turnover threshold for at least two parties in the deal. It also prescribed such individual threshold for a cross-border deal: at least two parties should have assets of minimum Rs 200 crore or turnover of Rs 600 crore in India to attract CCI scrutiny. The draft regulation also sought to reduce the time to clear an M&A deal to 30 days while the law allows CCI to take up to a maximum 210 days. These norms are expected to be fine-tuned now. The model code of conduct in force ahead of national polls does not prevent the government from notifying competition law provisions as it is merely operationalising a statutory body, the CCI official said. Competition law was amended in 2007 to give adjudication powers to the CCI