Reliance Com-Sistema a one-off till spectrum caps hiked
In the first merger in the Indian telecom sector after the cancellation of licences by the Supreme Court in 2012, Sistema Shyam Teleservices is being merged into Reliance Communications (RCom). Sistema, with 9 million subscribers, and 3.75MHz of liberalised CDMA spectrum—in the 800MHz band—in each of 8 circles, will end up with a 10% stake in RCom. The advantage for RCom is that it extends the validity of spectrum in the 8 circles—Delhi, Kolkata, Gujarat, Karnataka, Tamil Nadu, Kerala, UP (West) and West Bengal—from 2021 to 2033. As a result, RCom need not seek spectrum in these circles when its licence comes up for expiry in 2021. It has also acquired spectrum in Assam and the North East in the 2013 auctions. Using the liberalised spectrum, RCom can start offering 4G services to its consumers. With the Sistema spectrum, RCom has the flexibility to migrate its CDMA customers to LTE (using MTS’s spectrum) and/or trade its combined holdings with Reliance Jio in the future. While this move has reduced one operator, it cannot be truly classified as consolidation in the industry.
The reason for the lack of consolidation is the spectrum cap imposed by the department of telecommunications (DoT)—spectrum cap of 50% in a band and 25% in a circle. That restricts any M&A activity between large operators as well as spectrum sharing/trading which is critical to solve the problem of call drops. In Delhi, for instance, it makes a lot of sense for, say, a Bharti Airtel and a Vodafone to combine in the 900 MHz band where they have, respectively, 6 Mhz and 5 MHz of spectrum since they can offer better quality services to customers by doing this. Both telcos meet the criterion of the 50% in-band spectrum cap but Bharti trips up on the overall cap of 25% on all spectrum. Telecom minister Ravi Shankar Prasad has asked a committee in the DoT to examine this issue, vital if consolidation is to take place—at 10, India has too many telcos, as a result of which the industry is in the red. Apart from the caps, the government also needs to relook the provision on trading which state that the revenue earned will be added to the revenues of the trading firm—if telco A trades R1,000 crore of spectrum with telco B, this will be added to its revenues and it will have to pay 13% license fee/spectrum charges on it, apart from a 1% administrative charge that B will have to pay. This is unfair since the spectrum being traded has been bought at market prices and the rule acts as a deterrent.