Trai to lift cap on players, ease M&A norms

NEW DELHI: In its next stage of licensing reforms, telecom regulator Trai this week will recommend that there be no cap on the number of players in a circle and operators be allowed to offer both CDMA and GSM services under the same licence. It will also propose easing of merger and acquisition norms in the sector. Trai’s recommendations, which may come under severe criticism from GSM players, are expected to free the telecom sector further.

According to sources, though there are between five and eight access service providers in each licence service area and a number of other operators have applied for new licences, the regulator is not in favour of capping the number of players. Instead, Trai is of the view that relaxing the M&A norms is the step forward as it will help consolidation in the sector.

This implies that the controversial cross-holding cap, which prevents a telecom company from holding more than 10% stake in two operators in the same circle, is set to be raised or done away with. Sources said Trai will raise the cross-holding cap to 26% or higher because under Company Law, this is the minimum stake one needs in order to have a meaningful say in a company.

This comes even as most GSM operators as well as the Tatas, a major CDMA player, want the 10% cap to be retained. The Tatas held 48.14% in Idea Cellular and a controlling stake in Tata Teleservices. As Tata Teleservices has a nation-wide presence in the CDMA space, this was restricting the expansion plans of Idea. Vodafone, too, offloaded a significant part of its 10% stake in Bharti Airtel, following its acquisition of Hutchison Essar.

The regulator is likely to rule that the licence is technology neutral, and operators be permitted to offer any recognised technology. This will mean that players such as Reliance Communications and HFCL, which currently offer CDMA services and have applied for GSM spectrum will get these frequencies, subject to availability. At the same time, the regulator, will also recommend some changes in the spectrum allocation norms both to protect existing players and also offer a level-playing field to new players, sources added.

At present, second-generation spectrum is assigned based on the service provider’s subscriber numbers. Speculation is rife that Trai may suggest a policy change though it is not clear if the government will want a separate consultation process on this issue. Sources said that the Trai is all set to do away with the stringent rollout obligations that currently weigh down the sector. Only state-owned BSNL wants the rollout norms to continue.

Justifying the need for further reforms, Trai, when launching the consultation process had said: “Competition and steady subscriber growth by itself may not be sufficient to ensure that the Indian telecom market will sustain the same phenomenal growth in the changing market scenario. It is imperative that policy framework is periodically reviewed to provide required catalyst for sustained growth.

“From the perspective of the cellular telephony market, there is an urgent need to ensure a clear, fair, predictable, transparent and stable policy and regulatory framework, especially with regard to spectrum policy, investment norms, competition policy, and the licensing regime.”