8 Dec 2015

Merger And Acquisitions (M&A) Policy And Guidelines 2014 For Telecom Sector Of India

The regulatory environment for telecom sector of India is fast changing to the betterment of various stakeholders. Foreign companies have been demanding a liberal telecom policy before they invest in India. Indian government started accepting these demands one by one.

The first assurance in this regard can be found in the form of the FDI policy for telecom sector of India 2014 (PDF). Indian government has liberalised and enhanced the FDI limit with FIPB approval. Similarly, Indian government has also given approval to establish two semiconductor wafer fabrication manufacturing facilities in India (PDF). This would benefit companies of Japan and Korea in expanding their bases in India. The electronic system design and manufacturing (ESDM) policy of India has also been streamlined by Indian government.

The guidelines for merger and acquisitions of telecom companies in India 2014 (PDF) have also been issued and many international telecom companies have shown their interest in this regard. The M&A policy for the telecom sector is likely to be presented before the cabinet for approval by 27 February 2014.

However, companies like Tata Tele and Aircel, which carry non-auctioned spectrum in their fold, may not be benefited much by this policy. All companies that are purely targeting spectrum acquisition would prefer to avoid the M&A route as it involves debt intake and risks, heavy costs and regulatory approvals. Rather they would opt for engaging in spectrum trading or sharing, policies for which are on the anvil. The M&A route would be generally preferred by those who wish to improve and enhance their subscriber base or infrastructure.

The new M&A guidelines prescribes that an acquirer will have to pay market price for spectrum of an acquired company in case of non-auction airwaves and came in with entry fee along with the licence. This has to be paid on a pro-rata basis for the remaining period of the licence. The guidelines are also liberal and pro active in the sense that they have removed the condition of a three-year lock-in period before any new spectrum can be sold. The guidelines also allow a higher 50% combined market share for the merged entity instead of the 35% proposed earlier, making it easier for bigger companies to engage in M&As.