- The Telecom Sector needs consolidation in the near future. This could be brought about sooner than later owing to these measures undertaken by the Government:
- new Merger & Acquisition norms, allowing merger entity to hold 50% of spectrum in a particular band
- success in spectrum auction
- relaxed subscriber & market share norms
- 25% of total spectrum in a circle will allow large incumbent operators to acquire mid-sized & smaller rivals in individual circles
- smaller companies with financial constraints will be provided with an exit window
- Consolidation maybe easier said than done due to the following factors :
- as leveraged balance sheet of most operators
- one-time fee for excess spectrum
- requirement to pay an additional fee to the government for spectrum not acquired through auctions
- most spectrum allocated to Tata Teleservices & Aircel are at administered prices, which requires additional payouts to acquire them
- The increased number of 3G subscribers along with increasing average revenue per user of voice & data services suggest an upward trend in the sector.
- Each player’s pricing power will increase due to consolidation & high acquisition cost. Ex. Reliance now gets to complement its proposed 4G data offerings with voice, however, acquiring competitors will be critical as it will have to offer attractive packages besides cutting tariffs.
Exams Perspective:
- Telecom Policy
- Consolidation of Telecom sector