Telecom M&As are waiting to happen, but Archaic Regulations are Preventing them from happening. The new Telecom Policy 2011 should provide some reprieve and foster healthy, and less severe competition in the sector
Sector analysts and industry experts believe that consolidation will happen in telecom once the cap on M&A, as defined by the NTP 1999, is removed. DoT rules stipulate that an operator can’t own 10% or more in another operator in the same circle. “Current M&A rules have many restrictions, and impose heavy costs on M&A; such as rules, which shorten the license terms of spectrum post-merger. These rules must be relaxed to allow the market to return to healthy & effective competition,” says the spokesperson from Vodafone Essar Ltd. Further, policies like unified license for all services, allowing voice calls on 4G, et al are raising fear of more competition. Hurdles in India have led to players looking overseas for greener inorganic pastures. Bharti acquired Zain’s African mobile services for $ 10.7 billion, 100% stake in Telecom Seychelles Ltd. for $62 million and a controlling stake in Warid Telecom.
Another barrier for M&As is the huge investments in 3G licenses, infrastructure, network rollout, et al, due to which telcos are concerned about return on capital investment. Most telcos including leading operators are under huge debts and price wars do not give much hope of reprieve. With uncertainties and irregularities in regulation, operators are uncertain about more investments and so are banks. Even foreign-backed new entrants like Uninor, Sistema & S-Tel have found it hard to be in the black. The picture does not look so good due to the hyper competition and rock-bottom tariffs. “There are many players looking to exit or sell off. This is also obvious from the fact that many have not even rolled out their services yet” highlights Hemant Joshi, Partner Deloittee Haskins & Sells.
Data revenue uplift is expected to help players, and Credit Suisse projects it to be 50% of incremental revenues in the next three years. However, the competitive advantage would still be with players like Bharti, Vodafone and Idea, who have higher net worth subscribers. That is why Credit Suisse has projected an EV/EBITDA ratio of 6.2 for Bharti and 5.1 for Idea for Q1, FY 2012-13, while it projects only 4.2 for RCom. Without the multiple advantages of these giants, many of the smaller players seem to be only sitting on spectrum and assets or maintaining a comfortable growth rate waiting for an exit. It’s time to let the deals flow.
Another barrier for M&As is the huge investments in 3G licenses, infrastructure, network rollout, et al, due to which telcos are concerned about return on capital investment. Most telcos including leading operators are under huge debts and price wars do not give much hope of reprieve. With uncertainties and irregularities in regulation, operators are uncertain about more investments and so are banks. Even foreign-backed new entrants like Uninor, Sistema & S-Tel have found it hard to be in the black. The picture does not look so good due to the hyper competition and rock-bottom tariffs. “There are many players looking to exit or sell off. This is also obvious from the fact that many have not even rolled out their services yet” highlights Hemant Joshi, Partner Deloittee Haskins & Sells.
Data revenue uplift is expected to help players, and Credit Suisse projects it to be 50% of incremental revenues in the next three years. However, the competitive advantage would still be with players like Bharti, Vodafone and Idea, who have higher net worth subscribers. That is why Credit Suisse has projected an EV/EBITDA ratio of 6.2 for Bharti and 5.1 for Idea for Q1, FY 2012-13, while it projects only 4.2 for RCom. Without the multiple advantages of these giants, many of the smaller players seem to be only sitting on spectrum and assets or maintaining a comfortable growth rate waiting for an exit. It’s time to let the deals flow.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
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IIPM: Indian Institute of Planning and Management
