Telecom Lead India: Paving way for consolidation in Indian wireless industry, India has decided not to levy special spectrum transfer charge on mergers and acquisitions (M&As).
The Cabinet decision on Thursday will speed up consolidation moves in the struggling telecom industry in India. M&A is becoming vital for most of the Indian mobile service providers.
Operator like Airtel, despite all efforts, is unable to improve its profitability due to increasing costs and competition. Airtel’s net profit increased by 30 percent to Rs 721 crore in second quarter of fiscal 2012-13. Driven by 77 percent increase in mobile data income, Airtel clocked 17.4 percent increase in second quarter revenue to Rs 20,273 crore.
The beneficiaries will be Reliance Industries which is keen to buy stake in Videocon Telecommunications and MTS India that is talking to Aircel for a possible alliance.
All operators in India are promoted by cash rich companies and hence there is a delay in consolidation, analysts said.
US operators are going through consolidation as shareholders always look at healthy balance sheet. In India, majority of mobile operators are yet to make profit from telecom business due to regulatory issues and increasing Capex and Opex.
According to a report in Economic Times on Thursday, EGoM has opined that mergers, in accordance with stipulated guidelines, lead to consolidation of spectrum and increased efficiency. Parties to merger would have paid for their respective spectrum holding in line with the decision on pricing of spectrum.
EGoM earlier said no additional charge needs to be levied in the event of merger of such licenses. EGoM concurred with the proposal that in view of introduction of market based pricing of spectrum, spectrum transfer charges of 5 percent may not be levied on the difference between the transaction price and the market price of spectrum.
After mobile phone companies that bagged licences in 2008 issued fresh equity to foreign investors at a huge premium, DoT proposed a spectrum transfer charge to prevent operators from making windfall gains by selling airwaves. TRAI had suggested that the spectrum transfer fee be fixed at 5 percent of the difference between the transaction price and the market price.