DoT considers consolidation, new operators may go out

New Delhi: As part of its plans for consolidating the players in the domestic telecom market, the Department of Telecom (DoT) is examining proposals that would allow new mobile operators, who were given licences and airwaves under controversial circumstances two years ago, to sell out or exit, reports Joji Thomas Philip from the Economic Times.

Do you think Americans are Workaholics?

	Yes
	No

   View result

According to a DoT official 'exit options' were being discussed after some new entrants approached the telecom department seeking a refund of their 1,651-crore entry fee in return for them surrendering their licences and spectrum to the government. While the official declined to name any particular company, he added that some players wanted to selectively surrender licences and spectrum in specific circles as they faced 'several' constraints, including funding, in launching mobile operations across all 22 geographies in the country.

The official said several possibilities were being considered, including allowing new companies to merge with larger operators, shortening the three-year period during which the promoter of a new company cannot sell out, and relaxing rules to allow incumbents to retain airwaves held by these new companies if a buyout or merger were to happen. He added that these discussions were still at an 'initial stage' and nothing had been finalised.

Stringent M&A restrictions had been imposed on the telcos a few years ago to prevent new players, who had got pan-India licences and spectrum at a flat fee of 1,651 crore, from selling out at huge profits. Earlier this year, the telecom regulator issued a new set of M&A guidelines which were criticised by some of the big telcos as these recommendations effectively shut them out of the consolidation process.

But the Solicitor General of India has recently said that it is no longer mandatory for the telecom department to seek the telecom regulator's recommendations while making policy changes, giving DoT the power to unveil new M&A norms on its own.

Romal Shetty, Telecom Practice Head at telecom consulting firm KPMG, said both new entrants and existing operators were keen that the M&A norms be amended as 'the industry is of the view that a 14-player market will kill the sector'. "At most, the country has to have 6-7 players for the sector to be profitable. Existing norms will have to be relaxed, and globally, companies have always talked to regulators for favourable policy measures for their survival," he said. Shetty added that mergers would also lead to more efficient use of airwaves.

The country's largest telco, Bharti Airtel too believes that consolidation is inevitable. "We have been saying from day 1 that 14 operators cannot have an economic model that is sustainable and viable. We have always maintained that final consolidation will see not more than 5-6 operators," said Sanjay Kapoor, CEO, India & South Asia, Bharti Airtel.

"We believe consolidation will happen when the environment supports it. We intend to grow further with a long-term business case based on organic growth. Of course, we will keep our M&A option open when the environment is more suitable and a good opportunity becomes available," opined Rajiv Bawa, Executive Vice-President, Uninor.

New players have struggled with their rollout plans and their rate of adding new subscribers has slowed down. Etisalat and Loop (except in Mumbai) are yet to launch commercial operations despite holding pan-India airwaves to launch mobile services for nearly three years. Videocon has launched in only five of the 22 circles. STel, another new player, is also exploring options to merge or buy out another telco as its licences are limited to just six small circles.

Uninor, STel, Loop, Etisalat DB, Videocon and Sistema together added less than 12 percent of 18 million customer additions in June, according to data released by Trai. This is in sharp contrast to last year's numbers when Uninor added a million users within 30 days of launch. STel managed to clock one million subscribers in 90 days from three small circles. While Videocon added 1.39 million users in May, it could add only a third of that in June. The new entrants together account for less than 3 percent of India's 600 million mobile users.