Analysis of TRAI Recommendations on Wireless Spectrum and Mergers-Acquisitions

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In: Mobile, Telecom

TRAI came out with its recommendations on wireless spectrum allocation and mergers and acquisition in the Indian telecom market. My comments appear in Italics. TRAI suggested,

  • No cap on the number of service providers operating in any circle [HFCL, Spice, By Cell, Parsvnath, etc may all get to enter the Indian Telecom space]
  • Constitution of an expert level committee comprising of Scientists and Technologists from National scientific institutes who will provide recommendations on wireless spectruum [Excellent Move]
  • Current spectrum allocation policy changed, so that spectrum allocation is not stalled. Any licensee wishing to get more than 10MHz of spectrum in any circle has to shed extra bucks. [W.R.T this Live Mint article, Vodafone-Hutch-Essar has reached the limit in Delhi, Kolkatta and Mumbai circles. Bharti Airtel in Mumbai and Delhi + Karnataka with latest allocation. BPL  in Mumbai. So Vodafone-Hutch-Essar is the biggest loser. However, if you recall, GSM subscribers get twice the spectrum than that of CDMA – apply this rule for argument, then Anil Ambani’s Reliance Communications is the biggest loser as it has exhausted 5Mhz limit in all the metro circles]
  • Spectrum other than 800, 900 and 1800 bands will be auctioned in future to ensure efficient usage. [This will increase the Capital Expenditure of Telcos]
  • Spectrum usage charges linked to the service providers revenue stands revised upwards or left unchanged.

On Mergers and Acquistions:

  • No M&A to be allowed if the number of operators were to fall below 4 in any service area. [TRAI wants to encourage competition by having atleast 4 choices for the consumer]
  • In case of M&A the marketshare of merged entity in the relevant service area shall not exceed 40% in terms of subscriber base or in terms of revenues. [ So put all the rumors of Reliance Communications buying out Aircell or Idea Cellular to rest. Rcom CDMA already has more than 20% in each circle and hence it is now impossible for RCom to takeover any other operator – TRAI doesn’t state GSM or CDMA in specific, so Ambani can use that card and say the acquisition is in GSM where his market share is very less or Nil in most lucrative circles]
  • Spectrum of merged entity will be the sum of individual entities and hence prescribed charges will be levied on the same [Government makes money here]
  • One operator can hold upto 10% equity in another without any approval and anything beyond that and upto 20% needs TRAI’s permission.
  • Wireless and Wirelines will be treated as different verticals for M&A. Wireless will include Fixed Wireless Phones.

These recommendations will increase competition, spectrum charges and capex of telcos. The bottomline impact on Bharti Airtel is expected to be ~ 1% on EPS. On M&A, TRAI makes it clear that it encourages competition. If larger players like Reliance want a slice of both GSM and CDMA, it should be forced to Build rather than Buy, paving way to create more jobs and vibrant local economy. Questions and Comments are welcome 🙂

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