Govt to liberalise telecom M&A rules, scrap lock-in requirement

The government is expected to announce more liberal guidelines for mergers and acquisitions in the telecom sector, doing away with the three-year lock-in period mandated at the time of sale of spectrum in a bid to give some leeway for the struggling telcos.

The new M&A guidelines, expected to be announced in the next 10 days, will allow a higher 50 per cent combined market share for the merged entity instead of the 35 per cent allowed earlier - a move that will enable top telecom companies like Bharti Airtel, Vodafone and Idea to acquire other companies.

The relaxation on the lock-in period will help the highly debt-laden telecom firms that are facing intense competition. Many smaller and cash-starved companies would like to merge with bigger companies as they battle higher costs and depleting margins.

"If a licensee participates in an auction and is consequently subject to a lock-in condition, then if such a licencee proposes to merge / compromise / arrange / amalgamate into another licensee as per the provisions of the Companies Act, the lock-in period would apply in respect of new shares which would be issued in respect of the resultant company," reports cited a note prepared by the Department of Telecom (DoT) as saying.

The substantial equity or the cross-holding clause will not be applicable during this period of one year, unless extended otherwise.

The proposed guidelines also mandate that an acquiring company will have to pay market rate for the new spectrum if the acquired company had received the airwaves in the earlier non-auction regime, or as part of the telecom licence.

"If a transferor (acquired) company holds a part of the spectrum (4.4 MHz in GSM and 2.5 MHz in CDMA) which has been assigned against the entry fee paid, the transferee (acquiring) company (resultant merged entity) shall pay to the government the differential between the entry fee and the market-determined price," the note proposes.

However, no separate charges shall be levied for spectrum acquired from 2010 onwards through auctions. The licences and authorisation of the acquired company will be subsumed in the resultant entity consequent to the transfer of assets and licences.

The DoT is also proposing a relaxation in terms of the stiff penalties that have been slapped on many telecom companies and which have been challenged in courts.

There will be no stalling of an M&A due to pending penalties, though the final entity will have to give an undertaking that any demand raised for pre-merger period in respect of both the companies will be paid.