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Cellphone call rates poised to tumble further

Consumers are likely to be the biggest beneficiaries of the new guidelines on mergers announced by the department of telecommunications on April 22. Arun Kumar reports.

india Updated: Apr 28, 2008 05:04 IST
Arun Kumar

Consumers are likely to be the biggest beneficiaries of the new guidelines on mergers announced by the department of telecommunications (DoT) on April 22. Reason: a larger number of telecom operators, leading to greater competition, that will finally lead up to another round of price wars by mid-2008.

“There will be a quantitative and qualitative change in the competition,” said Mahesh Uppal, a telecom policy analyst. “In case foreign telecom giants manage to enter the Indian market, which is very likely, it will up the ante for all the incumbents and will finally benefit consumers,” he added.

Behind the scenes, the story will be even more exciting. The new guidelines are likely to help foreign players enter the Indian market, while incumbent companies will find it difficult to acquire other operators.

The new players, like Unitech, Videocon and Swan, will benefit the most. These companies, which got their licences in March 2008, are in talks with large foreign telecom giants looking for a toehold in the world’s fastest-growing telecom market.

As many as nine foreign players are currently in talks with Indian licence-holders. These include US giant AT&T, Telenor Norway, Vimpel Communication of Russia, MTN of South Africa, TeleKom Malaysia, Etisalat of Dubai, and Zain Telecom of Kuwait.

According to initial estimates, spectrum of 4.4 MHz nationwide is expected to be valued at Rs 8,000-10,000 crore ($2-$2.5 billion). “Since none of the new operators barring Shyam Telecom has a foreign partner, they are in various stages of negotiation to divest between 26 per cent and 50 per cent stakes,” an investment banker said on the condition of anonymity. “In fact, they also want to ride the growth story and will bring down their equity holding to 26 per cent through stock market listing,” he added.

The new guidelines carry a fine print. While a merger of two existing companies has been allowed, it has simultaneously stipulated that they need to meet the subscriber criteria on enhanced spectrum within three months of the merger. “This is impossible,” the banker said.

The idea behind the guideline is to prevent hoarding of spectrum. “The spectrum allocation criterion is to be met at a consolidated level by the merged entity within three months, effectively ruling out spectrum hoarding,” said Vivek Gupta, a partner at BMR Advisors.

“It is simply impossible for any operator to add sufficient subscribers to meet this clause within three months,” said the chief executive of one of the leading mobile companies on the condition of anonymity.

In addition, the new guidelines also say that any permission for merger shall be accorded only after completion of three years from the effective date of licence. “This, in effect, means the new players cannot be allowed to merge with an incumbent,” the chief executive said.