Govt May Tweak Telecom M & A Norms

[Honest 836]

Govt may tweak telecom M&A norms

17 Jul, 2008, 0350 hrs IST, ET

KOLKATA/NEW DELHI: The Department of Telecom (DoT) is tipped to review the norms on M&As in the telecom sector, which were notified in April 2008.

In a bid to clamp down on speculators and weed out non-serious players, the government is planning to restrict start-up telecom companies from selling out within a certain time period.

At present, telecom start-ups are free to sell a controlling stake in their companies at any point unlike established telcos who have a three-year lock-in period.

DoT, while announcing the merger guidelines in April 2008, had said that an operator must complete three years in a circle before it can merge or be acquired by another operator. Under this clause, several existing players such as Idea, Aircel and Vodafone Essar, who were recently awarded new licences in many circles cannot go in for mergers in these zones.

However, such restrictions do not apply to new entrants like Datacom, Unitech, Swan and Loop Telecom, who were granted telecom licences earlier this year. Existing players had complained that these norms would help new entrants, who got licences for a mere Rs 1,651 crore, to make a quick buck by selling a majority stake.

In addition, DoT, in consultation with telecom regulator TRAI, is trying to bring in more clarity on computing spectrum transfer charges and spectrum enhancement charges, which will be applicable to existing as well as new players.

While DoT’s earlier norms had said spectrum transfer fee would have to be paid in the event of an M&A between existing players, it had not quantified this charge. Sources said DoT, while reviewing norms, will explicitly define spectrum transfer charges following an M&A transaction. The revenue implications are likely to be factored in and submitted to the finance ministry.

Another key issue likely to be addressed is the quantum of spectrum charges that a company would have to pay if it had more radio frequencies than its entitlement after a merger or acquisition. DoT had earlier said following a merger, the combined entity would have to return excess spectrum within three months. It added that after the expiry of this period, charges for the excess spectrum would be doubled every three months.

The industry, especially GSM operators, had sought a review of this clause on grounds that post-merger, it would not be technically feasible for the combined entity to return excess spectrum within three months. ET has learnt that even TRAI has hauled up DoT on this issue.

“We have told the government that following an M&A, the operator should be given a minimum timeframe of nearly a year. Only if telcos don’t reach the requisite subscriber base within the 12-month timeframe, should they be asked to surrender excess spectrum,” a top TRAI official said.

Some operators have also proposed an alternate framework where DoT works out a mechanism to charge telcos for this excess spectrum (following a merger) until they reach the subscriber-linked eligibility criteria.

Sources close to the development also said DoT would take a relook at Clause 1 of the M&A guidelines, which made it mandatory for telecom players to secure government approval for a merger even at the concept stage.

“DoT officials privately concede that not every proposal needs the Centre’s go-ahead at the concept stage. They merely need to take a call once an intra-circle M&A transaction gets consummated to ensure regulatory compliance,” added a government source.

The industry too has told the government that such prior approval for any deal cannot be sought as talks between companies are held in secrecy. Besides, the industry had also objected to this clause on grounds that if DoT was to be informed of merger talks, then the same information must also be provided to markets (Sebi) and this, in turn, would violate the ‘non-disclosure agreements’ or confidentiality agreements that the two companies have entered into.

While it couldn’t be independently confirmed, DoT is also under a fair bit of pressure to tweak the present M&A clause that imposes the restriction of a 10% limit on cross-holdings between existing telecom operators, but in the same breath, allows telecom start-ups to sell off up to 74% equity to overseas entities.

“Though the 10% cross-holding restriction is meant to prevent the creation of telecom monopolies, the present rule makes M&As with existing operators nearly impossible while it encourages a new entity to cash out to an international player by resorting to the valuation game on the strength of its start-up spectrum allocation from DoT,” explained an industry source.

[Honest 836]

No plan to review M&A norms in telecom: DoT

17 Jul, 2008, 1850 hrs IST, PTI

NEW DELHI: The new telecom operators, which are yet to start services, are free to sell majority stake in their companies as the government on Wednesday said there was no plan to review the merger and acquisition norms announced in April this year.

"Currently no exercise is on to review the existing M&A norms," Telecom Secretary Siddartha Behura said, adding the companies even do not have to come to DoT for acquiring or selling stake up to permissible limit.

It is only in case of merger of two licenses, like in case of merger of Idea Cellular and Spice Communication in Punjab, a prior approval of DoT is required, he said.

Idea Cellular had recently bought over B K Modi-owned Spice Communications which had operations in Punjab and Karnataka.

Asked whether DoT would consider amending some of the norms like three-year lock-in-period for merger at later stage, Behura said "that stage has not come as yet".

Most of new telecom operators have been talking to foreign as well as Indian companies to rope them as partners to ensure timely setting up of network and start services by first quarter of next year.

Videocon promoted Datacom, real estate major Unitech and other new players are in talks with foreign telecom service providers to sell up to 74 per cent stake to mop up funds to set up infrastructure.

The new operators have paid Rs 1,651 crore for acquiring start-up spectrum for pan-India presence and they are allowed to sell up to 74 per cent stake (as per the FDI norms) in their ventures, DoT officials said, adding that no prior approval was required for such transactions.

[Honest 836]

Idea dials DoT for clarity on M&A norms: Sources

2008-07-18 22:46:12 CNBC-TV18

Sources from the Department of Telecom, or the DoT have said that the Aditya Birla Group owned Idea Cellular has written to the DoT seeking clarity on the Mergers and Acquisition (M&A) norms applicable.

Sources said that according to Idea Cellular, the (Idea-Spice) merger seems permissible even in overlapping service areas. Also it is permissible as per the 'Intent of Policy', sources added. The company has also sought clarity on the demerger of licences in overlapping areas, they said.

Sources also said that Idea is seeking clarity on transfer of demerged licence to other promoters. According to them, if merger or a demerger is disallowed, then Idea is willing to surrender licence. Idea has said that the licensor should then refund licence fee already paid. DoT sources have also said that the licence fee of about Rs 350 crore will be paid for two overlapping service areas.

There is no clarification yet from the Department of Telecommunications. They are going to evaluate this case. To some extent it would have taken them by surprise because the policy that was framed in April 2008 is very ambiguous.

The operational part says, “Any permission for a merger shall be accorded only after completion of three years from the effective date of the licenses.” Three years and licenses are the two operative words.

Now in the case of Idea and Spice, there are a few circles wherein Spice currently has operations and Idea has now got a license and it has already paid the license fee. So is the merger applicable there or not? That is the big question.

Idea is saying that in the case of licenses it need not necessarily mean that both the companies should have been there for three years. Spice has been operating for three years. The merger should be applicable even in overlapping areas. But the policy is ambiguous.

Idea has written to the DoT asking them to tell them what the policy is. A) Is the merger applicable in these areas or not? The way we look at the policy, the intent of the policy is only to ensure that new operators don’t make quick money and exit. That is not the case here because Idea and Spice are well-entrenched operators who have been around for 10 years. So they are saying that the way we look at it the merger is applicable.

In case it is not, they have sought the DoTs clarity on whether they can demerge licenses that are in overlapping areas. For example, licenses of Karnataka and Punjab, which in the case of Idea are critical. So, Idea is saying, can we then demerge them into a separate subsidiary and then transfer ownership of this demerged entity. Is that possible, they have asked the DoT for its permission?

They have said that if the DoT thinks that both are not possible, then they are saying that we are willing to surrender our licenses in these two areas but we would think that they are eligible for a refund. That amount would be to the tune of Rs 350 crore.

We understand that Spice has also written a similar letter because there are four circles in which Spice has got licenses in which Idea is also operating. It is an effort that has gone in from Idea and Spice as well.

We spoke to sources in DoT and they said that they are evaluating this letter. We understand that it will take them at least a couple of months because there is this ambiguity in the policy, which will now need to be addressed.

Will government returning the Rs 350 crore license fee?

Returning a license fee is unprecedented. It has never happened in India. It would be very difficult for the government to actually do that. It could set a very difficult precedent.

The second possibility, which is allowing Idea to demerge the two licenses, which are in overlapping areas and then send it off to another promoter again is very tricky because a whole host of new operators the likes of Swan, Datacomm who have got licenses in 21 circles then the DoT if they allow this what they are saying is that all these companies don’t need to meet the three-year lock-in period. They can just get the spectrum, create another entity, demerge these licenses and send it off, which is again very unlikely that the DoT could do.

We will then be left with just scenario wherein they will have to give approval to the merger in the licensing. So, it is a very tricky situation. We understand from DoT sources that they will refer to legal experts within the Department for their opinion and only then will they take a final call on this issue.

We spoke to a top official in the DoT and he said that this could take a few months for the DoT to give a final take because a lot is at stake.

[Honest 836]

Spice buyout in line with M&A norms, Idea tells DoT

22 Jul, 2008, 0008 hrs IST, ET

MUMBAI: Idea Cellular has written to the department of telecom (DoT) arguing that its acquisition of 40.8% stake in Spice Communications qualifies as a permissible merger of licences in the overlapping service areas.

In the absence of policy clarity, if the DoT feels otherwise, Idea said it was willing to surrender licences for Punjab and Karnataka, the circles which have come into its fold through the acquisition of Spice. Idea had received licences for these two circles in January. Also, Idea holds licences for Andhra Pradesh, Delhi, Maharashtra and Haryana. Spice had also received licences in these circles in January.

DoT’s April 2008 merger guidelines restrict amalgamation of two operators in the same service area for a period of three years from the date a licence is granted. However, since the term “licences” is used as a generic expression, clarity has to be derived from a purposive construction of the intent of policy, Idea MD Sanjeev Aga said in a letter to DoT secretary Siddhartha Behura on July 15.

“Clearly, the intent of the rule is to allow only serious operators and to prevent new licensees to seek arbitrage at the expense of public interest. That is evidently not the case here as both Idea and Spice are pioneering operators with over a decade of serious operations. There is no public interest attracted,” he said.

Further, if a new player can be allowed to indulge in M&A activity or stake sale within three years of taking the license, then “DoT policy has to allow another corporate with a license in the service area to do the same, so long as other competition related conditions are satisfied,” he added.

Also, if the policy permits change of control within three years for new license holders, then Idea can also demerge its two licenses into subsidiaries and transfer control to another promoter who does not have license for the same service area. “We will do this divestment with your prior approval and ensure our resultant holding is below the limits set out in the cross-holding license clause,” Mr Aga said, raising questions about the clarity of the DoT policy.

He also sought DoT’s views regarding the license fee collected against the new licences. “If your replies to our queries are in the negative, you may treat our UAS licence for Karnataka and Punjab as surrendered,” Mr Aga said.

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M&A norms not against foreign telcos, says DoT

30 Aug, 2008, 0008 hrs IST, ET

MUMBAI: The department of telecom (DoT) has clarified that its merger and acquisition (M&A) guidelines are not “unfriendly” towards international operators bidding for 3G spectrum and ruled out any tweaking of norms ahead of the auction process.

DoT Secretary Siddharth Behura said M&A guidelines, as they exist, are not an impediment for foreign players in any way. “International operators who win in the bidding for 3G spectrum will have three options—they can acquire a unified access service licence (UASL) or acquire up to 74 per cent stake in an existing operator or merge their 3G licence with an existing 2G licensee,” Mr Behura told reporters on Friday on the sidelines of Nokia Siemens Networks’ ‘energy efficiency summit’.

However, since blocks of 5Mhz 3G spectrum will be auctioned, it will not be sufficient for a new player for offering both voice and high-end data services. A global operator who gets 3G spectrum will then have to be in queue for 2G spectrum to be able to offer the full range of voice and data services effectively. Also, it will get a UAS licence for Rs 1,651 crore.

Alternatively, it can buy up to 74 per cent in an existing operator or merge their 3G licence with an existing 2G license. DoT’s M&A guidelines actually cover only mergers among telcos. Acquisition norms have been framed by the foreign investment promotion board (FIPB), which has capped FDI at 74 per cent in the telecom sector.

He said merger in the telecom sector implies only merger of licences and is different from “merger of companies”. New licensees (like Datacom Solutions, Loop Telecom and Unitech Wireless) cannot merge their licences with another operator for three years. However, they are allowed to sell stake.

Mr Behura said the auction process will be in place by October-end. “Since there will be separate auction for all the circles, it will take time. By December 31, we will be able to finish it. The final timeframe will be given by the selected auctioneer,” he added. Public sector BSNL and MTNL have already received 3G spectrum. “They had to be given a head start and should be able to offer 3G services in about six months.”

On mobile number portability (MNP), which will allow users to change operator while retaining the number, Mr Behura said the DoT had already floated the tender for appointing a central agency for MNP management. “The process is on track and in three months we will appoint the agency,” he said. The DoT is looking at introducing MNP by the middle of next year.

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Telecom's M&As at $9 bn despite downturn: Assocham

Press Trust of India l 24 Dec l New Delhi

The fast-growing Indian telecom industry has seen mergers and acquisitions valued at over USD nine billion this fiscal, unfazed by the global slowdown that resulted in fewer worldwide M&A deals, an industry survey said today.

Consolidation in telecom accounted for one-third of the total M&As in the country. The largest of around 20 deals this year was Japanese major NTT DoCoMo's purchase of a 26 per cent stake in Tata Teleservices, an Assocham EcoPulse study said.

The USD 2.7 billion deal "enabled the Japanese giant's entry into the world's fastest-growing telecom market, which has over three times the number of subscribers in Japan," the study said.

In another deal, Dubai-based Emirates Telecommunications Corp (Etisalat) bought a 45 per cent stake in Swan Telecom in cash for USD 900 million.

Idea Cellular acquiring a 40.8 per cent stake in Spice Communications for USD 679 million was among the major domestic deals in the last eight months this fiscal.

The study says of the USD 9 billion M&A deals, foreign companies infused USD 8.06 billion.

"The robust deal activity in the telecom sector gains significance in the backdrop of decline in the global merger volume by almost a third in 2008 due lack of credit," the study said, adding the sector is expected to continue to grow at rapid momentum despite all odds.

Indian telecom market is the fastest growing in the world, where it is adding about 10 million subscribers per month.

The industry has shown outstanding results. Sales for the top firms have increased by 30 per cent for the quarter ended September 2008.