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TRAI opens consultation process for mergers and transfers in telecom sector

What is the news: The Telecommunications Authority of India (TRAI) has invited comments on a consultation paper that aims to simplify and fast track the Merger & Acquisition (M&A) process and has warded off litigation in the telecom sector. The comments can be sent till October 18 and the counter comments by November 1 at advmn@trai.gov.in.

Where this consultation paper came from: The Department of Telecommunication (DoT) had asked TRAI for recommendations in May 2019. DoT had said that the telecom entities have filed petitions against many merger proposals before the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) to “quash and set aside certain conditions imposed on them by the telecom department”.

What the TRAI is seeking views on?

The TRAI is seeking comments for the following issues:

  1. Simplification and fast-tracking of approvals: The consultation paper says it has acknowledged over time that some clauses in the existing guidelines may have become redundant, while some are “ambiguous and demand clarity”. So it is seeking views simplification and fast-tracking of approvals, as was proposed under the National Digital Communications Policy.
  2. M&A in case of virtual network operators: It seeks views on M&A in the case of virtual network operators, who operate in partnership with telecom operators, but do not have a permit to install core network elements that connected two telecom networks.
  3. Provision of MVNOs in the M&A guidelines: The paper asks whether mandatory access to MVNOs (Mobile Virtual Network Operators) should be provisioned in the DoT M&A guidelines to address competition concerns. TRAI noted that:

In its letter dated 16th November 2018, VNOAI (Virtual Network Operators Association of India) has, inter-alia, provided a description of the international practices to avoid cartelization and to sustain the competition by mandating MVNOs/VNOs to the merged entity. In order to sustain competition in the market, VNOAI has suggested imposing a commitment on the merged entity to set aside 20% of wholesale capacity for MVNOs on the Mobile Bitstream Access (MBA) basis.

4. Changes needed in the provision of Unified Licenses: The regulator has views on changes required in the provision of Unified License (UL) so as to make them unambiguous. It noted that words used in the policy with expressions like “and if otherwise” lead to ambiguity and litigations and need to be simplified.

Existing guidelines on transfer/merger of licenses in telecom

The current M&A rules allow the amalgamation of companies not exceeding 50% market share in a service area. The rule limits the total spectrum held by the merged entity to 35% of the total spectrum assigned for access services and 50% of the spectrum assigned in a given band in the concerned service area. The combined spectrum holding in the sub-1 GHz bands – 700 MHz, 800 MHz, and 900 MHz bands -by the resultant entity shall not exceed 50% of the total spectrum assigned in the sub-1 GHz bands, by way of auction or otherwise, in the concerned service area.

The other important guidelines are as follows:

  • License dues to be cleared by either of the two licensees: 
    • All dues relating to the license of the merging entities will have to be cleared by either of the two licensees before the issue of the permission for the merger of licenses.
    • This shall be as per the demand raised by the government or licensor.
    • It should be based on the returns filed by the company notwithstanding any pending legal cases or disputes.
  • Rules for the resultant entity:
    • The resultant entity should be entitled to only one block of 6.2 MHz/ 5MHz (GSM/CDMA) for the paid entry fee.
    • Either of the parties to be merged should pay the Spectrum price and this shall not apply in case of the spectrum obtained through an auction, if any.
  • Duration of the license: The duration of a license of the Resultant entity will be equal for the two periods from the date of the merger. The paper also said that the spectrum transfer charge should be paid before permission is granted.

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