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DoT issues guidelines for merger and acquisition in telecom industry

21 Feb 2014 Evaluate

The Department of Telecom (DoT) has finally issued the much-awaited guidelines for merger and acquisition (M&A) in the industry. The new rules are a significant liberalization of the existing policy, given the need for increased investment in a sector. According to the guidelines, the buyer company at the time of merger shall pay to the government the differential between the entry fee and the market determined price of spectrum from the date of approval of such arrangements by the national Company Law Tribunal or Company Judge on a pro-rata basis for the remaining period of validity of the licences.

The guidelines also said that the merged entity's market share should not exceed 50 percent and in case the merger or acquisition or amalgamation proposals results in market share in any service area(s) exceeding 50 percent, the resultant entity should reduce its market share to the limit of 50 percent within a period of one year from the date of approval of merger or acquisition or amalgamation by the competent authority. The guideline also said that the total spectrum held by the merged entity shall not exceed 25 percent of the total spectrum assigned for access services and 50 percent of the spectrum assigned in a given band in the concerned service area.

Further, the government has in principle decided to allow trading of spectrum, which will remove hurdles for telcos to buy and sell spectrum from each other.The new rules also permit telcos to enter into M&As within the lock-in period of three years during which new entities are barred from selling equity.

The guidelines are seen a positive and right step by an industry desperate for consolidation. However, the operators have said that the clause that merged entity would need to pay the market price for the entire spectrum holding minus the entry fee already paid by the seller would increase M&A costs and potentially scuttle a lot of deals.

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