The long-overdue and much-needed consolidation of the Indian mobile telecommunications market is still on hold thanks to continuing government prevarication and inaction.
I was hopeful the incoming new government would introduce promised reforms in the form of pro-telecom and pro-consumer initiatives. If they had done it last year, we would have seen a rush of M&A activity commencing in the second half of 2014 and ultimately reducing the overcrowded service provider market from a ridiculous 12 participants to four or five operators.
Optimism was in the air until late last year when the first step in consolidation, the proposed acquisition of small Mumbai-based operator Loop Telecom by market leader Bharti Airtel (which had been agreed in February), was called off.
Bharti wanted to acquire CDMA operator Loop to take over its three million subscribers, thus leapfrogging Vodafone to become the top operator in this key “circle.” Bharti is top dog in the rest of the country. Loop did not participate in the February 2014 auctions for its spectrum-license renewal and therefore was planning to phase out its operations.
Everything had appeared to be going smoothly, and the two operators had signed an agreement, but the Department of Telecommunications (DoT) stonewalled for months on rubber-stamping. M&A in India used to require only Court approval to ensure the protection of minority shareholders’ rights, but the DoT inserted itself as the first step for any deals. In this case it took its own sweet time to act, or rather not to act, without any consideration for the interests of investors or Loop’s customers who were effectively abandoned by the authorities.
Finally, three weeks before Loop’s spectrum license expired—meaning it could no longer provide a service to its subscribers—Bharti decided it had no choice but to pull out. This was because the subscribers were being lured by other operators and leaving in droves. Bharti’s interest was in the subscribers, rather than the expiring license or the CDMA network, and the government foot dragging had resulted in far fewer subscribers and a lengthy approval process with no end in sight.
The question that begs to be asked is what part did cupidity play in the delay? If Bharti had acquired the subscribers, none of the revenue involved in Mobile Number Portability (MNP) would have gone to the government. However every one of the three million subscribers who voluntarily moves to another network, and wants to keep their number, has to pay the government a mobile number portability fee.
This desire to milk every rupee out of the mobile telecoms sector has been a consistent theme inherited from the last government by the present one. The unwillingness or inability to quickly introduce the necessary legislation to allow mergers and acquisitions to take place is also depressingly familiar.