One Time Spectrum Charges Payable on M&A, the proposal of the Planning Commission is grossly unfair to Dual Tech Operators

By November 28th, 2013 AT 5:14 PM

The The Empowered Group of Ministers on telecom had asked Department of Telecommunications to take recommendation of TRAI on base price of all three set of spectrum band, including CDMA. Following decision of the EGoM and then by inter ministerial panel Telecom Commission, DoT approached TRAI three times but the regulator did not recommend base price for CDMA spectrum.

mobile-towerApart from this, the EGoM is likely to firm up its decision on the much-awaited Mergers and Acquisitions (M&A) policy that is expected to pave way for consolidation in the sector with 10 mobile service providers.

But As per the DoT proposal, the scenario for M&A is as follows.

a) GSM Operator acquires GSM Operator = Payment for One Block of Spectrum at Market Price minus Entry Fee Paid
b) GSM Operator acquires Dual Tech Operator = Payment for TWO Blocks of Spectrum at Market Price minus Entry Fee Paid
c) Dual Tech Operator acquires GSM Operator = Payment for One Block of Spectrum at Market Price minus Entry Fee Paid

As per the Comments of Planning Commission  (in the table 1 below), the cost of merger for Dual Tech Operators increases, since in all scenarios , the Planning Commission has proposed that only one Block of Spectrum against Entry Fees paid should be allowed, despite the fact that Entry Fee has been paid TWICE by Dual Tech Operators, once each for each Technology.

The proposal of the Planning Commission is grossly unfair to Dual Tech Operators, this can be seen financially from the scenarios below:

i) GSM Operator acquires GSM Operator = One Block against the entry fee paid
Rs. 1659crs + Rs.1659 crs = One Block against the entry fee paid
ii) GSM Operator acquires Dual Tech Operator = One Block Free against the entry fee paid
Rs.1659 crs + (Rs 1659crs +Rs.1659 crs) = One Block against the entry fee paid
iii) Dual Tech Operator acquires GSM Operator = One block against the entry fee paid
(Rs. 1659crs. +Rs.1659 crs) + Rs. 1659 crs = One Block against the entry fee paid

While Pure Play GSM Operators on merger will get ONE BLOCK Free against the combined payment of the two merging entities of Rs.3318 crs, in the case of Dual Tech Operators, they will get one block free against the combined payment of Rs..4977crs.

Table 1

Particulars

DoT proposal 

Comments of Planning Commission

Treatment of licensees holding Dual Technology spectrum

i) Licensee holding Dual Tech Spectrum acquires a Licensee holding one technology Spectrum-Only one block of Spectrum is required to be paid for at the market determined price after adjusting the Entry Fee paid.
ii) Licensee holding One Tech Spectrum acquires a Licensee holding Dual technology Spectrum- The Acquiring Company is required to pay for TWO blocks of Spectrum.
iii) Licensee holding Single Tech Spectrum merges with licensee holding dual tech spectrum and a new entity is created: The resultant entity is required to pay for THREE blocks of Spectrum.
EGoM may consider either of the two following options:
A) Allowing only one block of 4.4 MHz or 2.5 MHz (CDMA) in lieu of the entry fee paid, to the resultant company, irrespective of whether its is by the way of acquisition or merger of dual technology license holder and/ or single technology license holder.
B) Levy of OTSC on the total spectrum holding of both the transferor company as well as the transferee company, before permitting any M&A. This will bring a level playing field for all kinds of M&A.

A Happy Geek and a Network Research Engineer with a really cool day job…

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Ryan M
Ryan M

Not really a surprise tho, to be honest…

Thanks for providing the table and numbers behind this goofy, goofy decision.

Bah.

Kingston
Kingston

Worst Government and their policies. Government should not appoint minister if they don’t have concern department knowledge. LAW is not equal to TELECOM and LAW can’t manage TELE(LAW)COM.

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