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Mobile merger to get a boost

New Delhi, March 14: The new telecom policy is likely to facilitate the entry of foreign players and encourage greater consolidation.

The policy is due before March 24 — the 100 day-deadline set for framing the new rules by telecom minister Kapil Sibal when he took over from the disgraced A. Raja.

As part of the draft M&A rules in the policy, mobile operators can merge in a circle with at least six players provided they don’t have more than 30 per cent of the total users in a single circle.

Existing rules did not allow an operator to even hold more than 10 per cent in another firm. “New rules being framed will also allow the entry of global telecom operators such as AT&T, French telecom firm Vivendi and Telefonica of Spain who have been looking to buy one of the new operators,” said officials of the department of telecom (DoT).

Concerned about the survival of mobile phone companies in a market that has 14 players, Sibal had said he would take steps to facilitate consolidation in the sector.

He said without consolidation the industry might not be able to sustain the current level of very low tariffs.

Consultancy firm Deloitte believes that collaboration through M&As, agreements on network sharing, outsourcing of non-core activities will be the way forward for survival in this highly competitive market.

“After paying high prices for 3G & BWA spectrum and facing the tariff war, which has seen a fall in revenues and a sharp decline in ARPUs, operators are expected to consolidate and will look at network sharing agreements to focus on their core business,” Deloitte said in its report on TMT (technology, media and telecommunications) Predictions India 2011.

In 2009, the telecom industry saw 33 M&A deals valued at $10.45 billion with Vodafone, NTT DoCoMo and Norway’s Telenor as the major participants. In 2008, there were 28 deals worth $4.3 billion.

Trai chairman J.S. Sarma had earlier said mergers were necessary to spur growth and investment in the capital intensive telecom sector. “However, changes in M&A rules would have to be a studied process, looking into the pros and cons of the norms.”

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