The Hindu Business Line : Beyond the circle

THE LONG-AWAITED CONSOLIDATION in the mobile telecom sector through intra-circle mergers and acquisitions is a step closer to reality with the Department of Telecom accepting the regulator's guidelines on this. The Telecom Regulatory Authority of India's guidelines are welcome and fair as they consider all the principal factors such as `market dominance' and `concentration of market power' in allowing intra-circle M&As. But they fall short on some counts. It will be appropriate if TRAI considers the implications of such mergers on a national basis, rather than confine it to the circles.

At the intra-circle level, practically all mergers are sure to be initiated by the top three GSM operators. The TRAI guidelines would apply the market share and concentration ratio test to ensure there is no market dominance, and that the number of operators in a circle does not go below three. This welcome test, however, fails to address an important element. Every time, one of the top three operators initiates an merger in a circle, its national market share would rise. TRAI has not spelt out a test to establish whether this would lead to a `substantial lessening of competition' at the national level. At present, nearly 60 per cent of the mobile market share is accounted for by top four GSM operators, including Bharat Sanchar Nigam. In its guidelines, TRAI has only specified that it will ensure that monopolies do not emerge in the mobile sector at any stage. Though this is of no concern now, a spate of intra-circle mergers can decisively alter the market share at the national level. It may be important for the DoT to consider guidelines that look at the implications of the intra-circle mergers from an all-India perspective.

Unlike in the past, there is a possibility that intra-circle mergers will happen slowly and over a longer time frame. Mainly because the TRAI guidelines propose to allow mergers with failed firms. The top three operators will favour such a move and play the waiting game as mergers are the least expensive route to consolidation. The smaller, non-integrated operators have an important role to play in enhancing competition in the mobile market. Since spectrum is scarce, the mobile market is not strictly "contestable" as, say, airlines — which allows for free and frictionless entry and exit of players on demand-supply economics. True, it is not incumbent on the DoT and TRAI to keep smaller players in business despite their inefficiencies, but in the larger interest of consumer welfare TRAI will have to ensure that in all circles which see such action, the fourth or the fifth mobile licence slot is always kept open so that new operators (overseas or domestic) have the freedom of entry and exit. There is no explicit assurance to this effect, now. Hopefully the DoT will remedy this at the time of issuing the guidelines.

More Stories on : Editorial | Telecommunications

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Beyond the circle

The end of development finance

The Sun rises in East, again

The truth about lies

Declining deficit-GDP ratios: Untold story of numbers

Book building

Coin surplus