Trai proposals may make M&As tough

The 40 per cent market share cap suggested by the Telecom Regulatory Authority of India (Trai) is likely to make mergers between existing telecom operators extremely tough.

Based on the July mobile subscriber numbers, Reliance Communications would not have been able to make a bid to buy Vodafone-Essar, as it had, as their combined market share would have been over the Trai's suggested cap.

While Vodafone-Essar has a 25.49 per cent market share of the total mobile market (GSM and CDMA) in terms of subscribers in Mumbai, Reliance Communications commands a 18.9 per cent market share.

The CDMA mobile operators, however, do not give the break up of mobile and fixed wireless subscribers, as the fixed wireless numbers are very small and of little consequence.

Similarly, a merger between BPL Mobile (bought over by the Ruias) with Vodafone-Essar, which was on cards earlier, will lead to a combined market share of around 36 per cent, coming too close to the Trai cap.

Under the current rules, the merged entity can have up to 67 per cent market share in terms of subscribers. Under the Trai recommendations, this has been lowered to 40 per cent. A new clause has also been added that the merged entity cannot have more than 40 per cent of the revenues too.

In the Karnataka circle, Bharti Airtel cannot acquire any operator as it already has a 39.7 per cent market share. So, hypothetically, if Spice Communications with an 8.8 per cent market share is up for sale, Bharti will not become a contender as it is now.

Again in Delhi, it will be very difficult for the top operator to buy out anything on offer. Bharti, with over 25 per cent market share, hypothetically, cannot buy Idea Cellular, which has a 12.59 per cent share, as it is too close to the cap.

Vodafone with around 21 per cent market share could do such a deal, but even they would find it too close for comfort. Reliance, which has shown interest in getting into GSM, has much more leeway, as in case it buys Idea, the combined market share would only be around 31 per cent. Similarly, in Punjab, both Bharti Airtel and Vodafone-Essar would find it very difficult to buyout Spice, if the company decides to sell out. As Spice has a 23 per cent market share, while Bharti Airtel's share stands at 30 per cent.

While Vodafone-Essar may only have a 15 per cent market share, buying Spice would take it close to the suggested cap. Only Reliance Communications, with a 8.3 per cent market share, is in a position to buy Spice.