The government has released the merger & acquisition (M&A) guidelines for the telecom sector. The sector where there is room for at best five to six operators is witnessing market share battles between up to 11 operators in some circles currently.
''The recent M&A policies will make consolidation easier for large players such as Bharti Airtel, Vodafone and Idea as the market share cap has been raised to 50% from 40% earlier,'' said ICICIdirect.
''However, the ruling that acquirers have to pay the differential between the auction-determined market price and the administrative price for anything beyond 4.4 MHz in the GSM band and 2.5 MHz in CDMA, if an acquired company has got spectrum at administrative price, is a deterrent. However, if the spectrum is acquired through auction, the merger will not attract such a fee. With this ruling, the acquisition would mainly happen in situations where the acquirer would not have to incur additional spectrum outlay. Airtel has already spearheaded the consolidated drive with the acquisition of Loop and we believe Vodafone will also be aggressive on the M&A front. Smaller players like Tata Teleservices and Aircel remain key acquisition targets. Also, RCom may explore opportunities to merge or sell off to other operators.''
''The M&A guidelines provide much needed clarity in the telecom sector. However, the clause of paying auction determined price may be a deterrent as it would require huge outlays towards spectrum cost. However, telcos may opt for surrendering additional spectrum, which would lower the overall cost of acquisition. Moreover, once the majority of the spectrum is liberalised by way of auction (as licenses come up for renewal) M&A would be relatively easier,'' it said.
''Also, the spectrum trading guidelines expected to be released shortly would aid consolidation wherein a transferor company can trade excess spectrum before merging/consolidating with the other entity. Nonetheless, even though the industry is in urgent need of consolidation, we do not expect telcos to act in a hurry. Hence, any further consolidation would only be gradual,'' ICICIdirect added.
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