Indian M&A rules fall short
India’s regulator has proposed a relaxation of the M&A rules, but don’t expect much-needed consolidation among India’s 14 operators any time soon.
The Telecommunication Regulatory Authority (TRAI) has proposed that mobile operators can merge in a circle with at least six players, provided they don’t end up with more than 30% of total users in a single circle.
That is considerably better than the existing rule, which says a company can’t buy more than a 10% stake in another company that operates in the same circle.
But the new proposition immediately rules out a merger between India’s large operators since that would cross the 30% threshold.
In short, the big cannot buy the big under this proposal.
Rather, its lends itself to big players merging with small operators, such as fledgling GSM1800 operators, Videocon Mobile or Etisalat DB.
The problem with this scenario is that the GSM1800 start-ups don’t bring anything to the table for the incumbents – few subscribers, large debt and no 3G spectrum is hardly enticing.
The big players are not so interested in more 2G spectrum, what they really want is more 3G spectrum to fill out network gaps.
“The M&A picture is more fragmented than before,” said Shiv Putcha, principal analyst with Ovum’s Emerging Markets unit, on the M&A proposition.
Putcha believes that the GSM1800 operators may look at a strategic exit strategy in the next one to two years.
But if they are going to catch the eyes of the big incumbents – who are about to dig deep for 3G spectrum themselves – it follows that they will need some 3G spectrum of their own.
And the next 3G auction is probably some three to four years away.
Oh yes, the M&A story in India just got a whole lot more complicated.