The controversial cross-holding cap, which prevents a telecom company from holding more than 10% stake in two operators in the same circle, is set to be raised or done away with altogether.
Telecom regulator Trai, which is currently reviewing key license conditions, is likely to recommend the 10% cross-holding ceiling be scrapped in a move which would make mergers and acquisitions easier and also pave the way for consolidation in the world’s most competitive and fastest-growing telecom market.
Current guidelines prevent an M&A from taking place if the combined market share of the two entities involved exceeds 67%. If the 10% cap is done away with, the regulator may also reduce the market share criterion to 50% as a counter-balance.
To prevent duopolies, the regulator also plans to ensure that the number of operators in any circle does not fall to less than three. It is also learnt that Trai is consulting both Sebi and the Company Law Board on the cross-holding issue. Under the Company Law, an investor needs to hold 26% to have a meaningful say in a company. “So, it is meaningless to raise the cross-holding norm to anything less than 26%,†a Trai source said.
DOT has asked Trai to review the existing M&A norms. Significantly, most GSM operators as well as the Tatas, a major CDMA player, want the 10% cap to be retained. “We are examining the reasons as to why M&As are not happening and why the country continues to have so many operators,†the source added.
The Tatas held 48.14% in Idea Cellular and also had a controlling stake in Tata Teleservices. As Tata Teleservices has a nationwide presence in the CDMA space, this was restricting the expansion plans of Idea. Vodafone, too, offloaded a significant part of its 10% stake in Bharti Airtel, following its acquisition of Hutchison Essar.
Trai is currently running a series of advanced computer model simulation tests to study all possibilities and probabilities in case of large mergers or buyouts among existing operators. Based on the results of the computer simulation tests, the regulator will decide whether to do away with this clause or raise it substantially.
“The simulation tests, which are being done circle-wise, will help us understand the impact in terms of subscriber base, spectrum, aggregate gross revenues and other parameters, if any of the top four players were to merge with each other,â€
Trai has already hinted that the current M&A norms need a relook: “In the light of increasing global interest in the Indian telecom market, the use of M&As as an entry route, and the possible strategy changes of current service providers, it will be important to review these rules and conditions so as to ensure that the Indian market remains competitive, and is able to sustain future growth,†the regulator said during the consultation process.
Trai has already said that M&As play an important role in enhancing economic growth, establishing effective competition, attracting investment, enhancing efficiency, improving economies of scale and scope and promoting efficient utilisation of resources. “Through this market process, under performing firms are replaced by more efficient firms,†the regulator pointed out.