For spectrum, new entity to pay price discovered at auction

Mergers and acquisitions in the telecom space have become expensive with the Empowered Group of Ministers deciding that companies buying an existing operator will have to pay the Government a market price determined at the upcoming auction. The move is aimed at preventing players from getting any windfall gains by opting to acquire an existing company rather than participate in the auction.

This means if suppose a company such as Sistema JSFC were to buy Aircel, the Russian major would have to pay the Government at least Rs 14,000 crore.

Ensuring fairplay

The Minister’s Group took this decision to remove any arbitrage the acquiring company may get through such a deal compared with what other players bid for the same spectrum. “It could adversely impact participation in the auction by companies which may prefer to utilise the merger route in preference to the auction route,” stated the Minutes of the EGOM meeting seen by Business Line.

Senior Government officials said this is being done to ensure that new players go through the auction route to acquire spectrum. For example, Aircel holds 4.4 Mhz of spectrum in most of its operating circle. For this, the company paid only the entry fee determined in 2001. Aircel does not have to pay any additional fee to the Government as of now. But if suppose Sistema acquires it, the Government wants it to pay for the entire 4.4 Mhz at an auction-determined price to prevent any windfall gain.

“The benefit of the differential in prices would accrue to the merging entities in some proportion determined commercially between them. It was noted that such accrual to these entities on a natural resource allocated by the Government at a non-market related price would not be appropriate,” the Minutes stated.

The Government was earlier criticised for not preventing windfall gains made by private players that sold their licences at a higher price than what they paid to the Government.

Tata Teleservices to get spectrum

The EGoM also decided to allocate 4.4 Mhz spectrum to Tata Teleservices for the Delhi circle at no additional cost. The start-up spectrum was promised to the company when it took licences in 2008. Since the Minister’s panel has decided not to charge any player with 4.4 Mhz spectrum, the company will not have to pay anything more than its entry fee. But the allocation will happen only after the auction is over, depending on availability.

(This article was published on November 2, 2012)
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