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The government will, in another notification, clarify the formula that it would follow to determine market share of telecom companies in the case of mergers and acquisitions (M&A).
The move comes after companies and associations raised questions on whether market share would be determined by subscriber base or revenue or whichever was higher, after the Telecom Commission had approved the proposed M&A policy on Wednesday.
According to the minutes of the TC meeting, M&A proposals resulting in a market share up to 50% (resultant entity after merger) in each circle may be permitted. It did not clarify how market share would be determined.
“Everything will be clarified in the final notification of the policy. We have deliberated all possible options (both subscriber base and revenue share) before taking the final decision,” said a member of the TC, who did not want to be named.
In the draft of the proposed M&A policy, it is stated that for determining the market power of telecom companies, the government will consider both subscriber base and adjusted gross revenue (AGR). For subscriber base, the visitor location register would be considered.
The TC has also stated that if the resultant entity crosses 50% market share in any of the 22 telecom circles, the merged entity will have to reduce the market share to 50% within a year. If it fails to comply, it would face action.
“There is no clarity. Instead of stating ‘whichever is higher’, if it states ‘both’, it would create confusion,” said a top executive of a leading telco.
Rajan S Mathews, director general, Cellular Operators Association of India said, “This needs to be clarified properly to avoid confusion. Market share in terms of revenue looks more realistic.”
If the government decides to take revenue to determine market share, it would not be very useful for the big telcos. The picture would be different if it is determined based on subscribers.
Based on revenue (AGR) market share till the quarter ended June, the top two telcos in India, Bharti Airtel and Vodafone, together have more then 50% market share in 15 of the 22 circles (even 70% in Rajasthan). Based on subscribers, the combined entity would cross 50% market share in only three circles.
So, going by revenue market share, an Airtel and Vodafone merger would not be possible in 15 circles or they would have to reduce revenue share to 50% within a year.
“This would not make much business sense for companies. Subscriber market share can be adjusted by cutting inactive customers. Companies would certainly be interested in increasing their revenue market share instead of reducing that. The issue, surely, needs clear clarification,” said Jaideep Ghosh, partner, KPMG India.
Both in terms of subscriber and revenue market share, mergers are possible between Vodafone and Aircel, Idea Cellular and Aircel, and Reliance Communications and Aircel, where the merged entities do not cross 50% market share in any of the 22 circles (see chart).
“It is likely to be based on subscriber market share and not revenue. Taking revenue as the parameter could discourage companies from going for possible M&As,” said Mohammad Chowdhury, partner and telecoms industry leader, PricewaterhouseCoopers India.
| Hypothetical instances of merger | No of circles where merged entity will have more than 50% market share in terms of Adusted Gross Revenue (AGR) |
No of circles where the merged entity will have more than 50% market share in terms of Subscribers (VLR) |
| Airtel & Vodafone | 15 | 3 |
| Airtel & Idea Cellular | 9 | 3 |
| Airtel & Aircel | 8 | 3 |
| Airtel & Rcom | 6 | 3 |
| Vodafone & Idea Cellular | 5 | 2 |
| Vodafone & Aircel | 0 | 0 |
| Vodafone & Rcom | 1 | 1 |
| Idea Cellular & Aircel | 0 | 0 |
| Idea Cellular & Rcom | 1 | 1 |
| Aircel & Reliance | 0 | 0 |
| Data as on June 30, 2013 quarter | ||
| Data Source: Trai | ||
