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Open sesame for mergers

New Delhi, Sept. 25: The group of ministers (GoM) on telecom today opened the doors to consolidation in the telecom sector by permitting intra-circle mergers, but worked in a couple of riders that would prevent the emergence of a duopoly.

Today’s decision will have to be ratified by the cabinet. The GoM’s decision will allow the dominant players to snap up weaker service providers in the same circle.

Earlier, the government had permitted inter-circle mergers, allowing telecom companies to buy out players in circles where they had no operations. Today’s decision carries this process a step forward and is expected to spark a rash of acquisitions and mergers.

However, several captains in the telecom industry felt that mergers were unlikely unless limited mobility players like Reliance and the Tatas moved in aggressively.

However, the GoM placed a few riders to give customers a fair choice. It said at no time can the number of service providers in a circle fall below three. It also said all the obligations of the acquired company (including those relating to rural telephony) will have to be implemented by the buyer company.

The GoM has also specified that spectrum will be allocated to the merged company based on the subscriber base of the acquired company at the time of merger.

Commenting on the GoM's decision, Sunil Bharti Mittal, chairman and managing director of Bharti group, said: “This is a good move since it gives an opportunity to some players to exit business. Earlier, there was no such provision and this led to agitation by a few who wanted to get out.”

“This will help telecom but we have taken the necessary safeguards through conditions that will have to be met.” This was also one of the long standing demand of the telecom operators who wanted to expand their business in circles where they already had operations.

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