TAMIL NADU

RINGING IN CONSOLIDATION

CONSOLIDATION AMONG PLAYERS in the mobile telephony business can be expected to quicken with the recent announcement of a set of guidelines on mergers and acquisitions within a telecom circle. The onset of a unified licensing regime, permitting telecom companies to offer a comprehensive, technology-neutral range of services, was clearly a signal for an industry-wide consolidation and for individual players to scale up their operations. Already in many telecom circles, there have been significant buy-outs of the smaller and stand-alone players: the takeover by Aircel of RPG Cellular, which operated in the Chennai circle, is a case in point. It is expected that the ongoing consolidation phase will leave just three or four players in each circle. For the smaller among them, a merger with one of the larger companies will be a business necessity.

However, for a relatively painless restructuring and consolidation of the industry to take place, two conditions will have to be met. The first is the availability of finance. The Government, which sought to enhance the cap on foreign direct investment from the present 49 per cent of a company's equity to 74 per cent, has not been able to do so. Security considerations have reportedly stood in the way of this major relaxation being pushed through the Cabinet. A clear, consistent official policy on mergers and acquisitions is the second requisite for an orderly transformation. The intra-circle guidelines are a good beginning, although they have not satisfied every section of industry. Of particular significance is the guideline on what the market share of the merged entity should be. While the Telecom Regulatory Authority of India recommended, in a discussion paper, a detailed examination where the merger confers a market share of more than 50 per cent, the new guidelines are more specific. The new entity's share must not exceed 67 per cent. Secondly, there must be at least three operators in the area for the particular service.

Consumer interests must necessarily be kept in mind while evolving official policies concerning a sector, especially one that has demonstrated strong oligopolistic characteristics in other countries. As the industry consolidates itself, the key requirement of public policy must be to protect consumers. Unfortunately, the early messages from the consolidation phase have not been customer-friendly in one crucial aspect. Mobile telephone tariff after declining continuously for almost two years moved up sharply from February 1 in certain categories. Cellular operators blame the introduction of the new regulatory Interconnect Usage Charge regime for the tariff rise. IUC is the charge that a telecom company pays another for accepting a call from it. A particular bone of contention has been how to estimate the cost of connecting a call from a mobile phone to a fixed-line phone. In practice, that means computing how much the cellular operators must pay the public sector Bharat Sanchar Nigam Limited, which controls the bulk of the fixed lines. The payment is seen as nothing but a way of compensating BSNL for the uneconomic tariff it is forced to set on certain types of calls at the Government's bidding. The justification for the cross subsidy can be debated but its immediate consequence has been a hike in tariff by the mobile operators. Until recently, competition in the sector was driven by price, with all operators consistently cutting tariffs to some of the lowest levels in the world in order to win rapid increases in the customer base. The regulatory changes and a more realistic assessment of industry economics have arrested the trend towards lower tariffs. The day of non-price competition has come.