Telecom Overview: New M & A Guidelines Issued by The Govt.
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We have recently seen a lot of mergers and acquisitions in the telecom space, some of which can lead to restrictive trade practises. Keeping that in mind the Govt. of India has issued new telecom guidelines.
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-Â Â Â Â Â Â Mergers of telecom licences will be allowed only within the same service area.
-Â Â Â Â Â Â A telecom company can sell equity to another company only after 3 years from getting a license.
-Â Â Â Â Â Â Merged telecom companies should not command more than 40% Market Share.
-Â Â Â Â Â Â No M & A activity to be allowed if the number of operators in a service area fall below 4.
-Â Â Â Â Â Â No investor with 10% stake in an existing telecom company will be allowed to merge or acquire another telecom company.
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These are basic guidelines laid out by the government to avoid monopolies and collusive oligopolies so that consumers get fair prices resulting out of sufficient competition. In India, so far at least, one has seen that the market for telecom is quite competitive primarily because one sees a lot of price competition coupled with non price competition as opposed to only non price competition which is a standard feature in market where cartels or collusive oligopolies exist.
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This might change because if one looks closely, the government has advocated only 4 operators in an area, which will encourage consolidation. That could lead to the stabilization of prices. These guidelines should, however, help prevent the hoarding of spectrum, which is a good thing.
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I don’t think government is advocating 4 operators in any area. The govt’s thinking has been to have as many operators as possible. This can be seen from the number of licenses that has been issued to get 2G network on the roll. This will substantially increase the number of operators in any given area. Further govt has made M&A difficult so as to stop the new companies from encashing spectrum.
If you are talking about 3G services that’s because of the spectrum limitation rather than govt policy. They are finding it hard to free up spectrum for the 3G services and have been able to free up just enough for the 4 operators to launch 3G services.
True, they have been issuing 2G licenses but the point here is not the issuing of licenses on behalf of the government. This covers mergers and acquisitions i.e. licenses being bought from parties that already hold licenses. In such a case, the government has stressed on a minimum of 4 operators per area (for all services).The thinking is that eventually the big players will look to buy out licenses from companies that are unprofitable and eventually the market will consolidate.