Government releases telecom M&A norms - Angel Broking

The department of telecommunications (DoT) on Thursday notified the guidelines for mergers and acquisitions (M&A). This needs cabinet approval. Key guidelines are as follows:

- A telecom company going for M&A with a rival will have to ensure the combined market share is below 50% both in the subscriber base and adjusted gross revenue (AGR). If the share exceeds in any of the 22 circles, it will get a year to reduce it.

- Acquirers of telecom companies holding 4.4MHz spectrum, allocated at old rate, will have to pay the difference between the initial amount and the market rate determined through the latest auction. The rate will remain valid for a year. Thereafter, the additional price calculated based on the prime lending rate of the State Bank of India will be added to determine the rate.

- The merged entity will be allowed to hold a maximum of 25% spectrum allocated in a service area and 50% in a particular band.

- In the case of CDMA spectrum (800-MHz band), the government has fixed the upper limit of the total spectrum holding at 10MHz.

- A merged entity will be allowed to hold a maximum of two blocks of 3G spectrum in a service area. This will check amalgamation of more than two 3G spectrum holding companies.

- Telecom firms can enter into M&As within the lock-in period that bars new entities from selling equity for three years. The lock-in condition bars telecom companies from transferring equities within three years of buying spectrum from an auction. The lock-in will apply in respect of new shares that might be issued in respect of the resultant company.

The rules, which would now potentially allow incumbent operators to acquire smaller rivals, or smaller operators to sign deals with each other, is expected to be viewed positively by an industry which necessitate consolidation. While these guidelines provide an exit route to companies who procured 3G or 4G spectrum in 2010 but have not rolled out, we expect genuine operator level consolidation will still take some time.

Source : Equity Bulls

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