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In a bid to encourage consolidation in the sector, the Telecom Commission has decided against imposing a spectrum transfer charge on Merger and Acquisition deals.
The Department of Telecom had earlier proposed imposing a fee akin to the duty paid to Government every time property changes hand. This was aimed at preventing fly-by-night players from making windfall gains by selling spectrum after taking it from the Government at below-market prices.
The Telecom Regulatory Authority of India had proposed that the Government should charge 5 per cent of the difference between the transaction price and the market price as spectrum transfer fee.
But the Telecom Commission, the apex decision making body in the Department of Telecom, has taken a view that transfer charge had become irrelevant since the Government was moving towards a market-based pricing mechanism for spectrum. “The Commission was of the view that with the introduction of market-based prising of spectrum, levy of such a charge has no sound rationale,” said an internal DoT note seen by Business Line .
This will come as a big relief to new players looking to exit the sector. A number of players, which had acquired licences in 2008, have not rolled out services due to the ongoing investigation on the 2G scam. There are 12-13 operators in the country which is more than what the market can support. The decision against imposing spectrum transfer charge will, therefore, reduce the cost of M&A deals.
Lock-in period
The Commission has, however, retained the three-year lock-in period for new operators. It has also decided that merger between two telecom operators will be allowed as long as the combined market share of the merged entity remains less than 35 per cent. For determining market share, the merged entity's subscriber base and gross revenue will be taken into account. TRAI had suggested that M&As be allowed up to 60 per cent market on a case-by-case basis. The Commission has left this open-ended and wants the telecom regulator to work out the specifics of the proposal before a final view is taken.
The telecom panel has also agreed that the merged entity can own up to 25 per cent of total GSM spectrum allocated in a circle (cap of 10 Mhz for CDMA players.) If the merged entity has spectrum beyond the prescribed limit, then it will have to surrender the excess airwave within one year. The Government will have the right to decide which spectrum is to be returned. For example, if the merged operator has spectrum in both 900 Mhz and 1800 Mhz, then the DoT may chose to take back the excess spectrum in the 900 Mhz, which will then be put up for auction. The Commission has also not specified a minimum number of operators that should be left in a circle post consolidation. The proposals have been sent to the Communications and IT Minister for approval.
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