Companies & Sectors
Consolidation can bring in economies of scale in telecom
Indian telecom market has 8-10 operators in each circle. Only top 3-4 operators are earning profit. However, we do not have clear M&A guidelines that can help consolidation
 
India, like most countries, have issued separate licenses for landline (basic), cellular, internet service providers, satellite and cable TV operators, each with a distinct industry structure, terms of entry, and varying requirement to create infrastructure. However, this convergence that now allows operators to use their facilities to deliver some services reserved for other operators necessitates a re-look into the existing policy framework. No jurisdiction in the world has 10-12 operators; most countries have 4-5 telecom players and at some places even just two. For this to happen in India, stronger and clearer merger and acquisition (M&A) guidelines are needed.
 
The much awaited M&A policy for the telecom sector, was released by the government in early 2014, but it seems to have disappointed the industry for more than one reason. A significant problem in the sector is that a merged entity cannot have more than 50% market share in terms of both subscribers and revenues in any of the 22 circles. The ultimate objective is obviously to avoid monopolies, and the restrictive practices it can give birth to, but companies are complaining that it leaves big telecos with no scope for merger between them. 
 
Based on the official data released by the Telecom Regulatory Authority of India (TRAI), the top two companies in the market, Bharti Airtel and Vodafone India, together cover over 50% in 15 of the 22 circles in terms of combined revenues, and in three circles in terms of combined subscriber base, meaning they will be unable to explore any merger. 
 
We must definitely keep in mind that, although mergers and acquisitions might continue to create big corporate conglomerates, there is a need to draw a fine line to avoid dominance and curbing of unhealthy open competition by them. Companies are after all always interested in increasing their revenues and market share and no acquisition be allowed amongst major companies, as that will create absolute dominance. 
 
The market regulator must interfere and ensure that the interest of both the industry and consumers is protected. In 2011, the Justice Department of the US blocked AT&T’s proposed multi-billion acquisition of T-Mobile, a deal which was supposed to create the largest carrier in the country and reshape the industry. The Justice Department’s complaint, which clearly stated that T-Mobile places important competitive pressure on its three larger rivals, particularly in terms of pricing, a critically important aspect of competition. By removing significant competitive forces from the market, eventually affects the customers, who face higher prices, less product variety and innovation, and poorer quality services due to reduced incentives to invest than would exist absent such a merger. Similarly, the Competition Commission of India (CCI) should scrutinise it into important cases to ensure there is not cartelisation by telecom operators.
 
One of the other major dampeners is that the buyer will have to pay a heavy amount to the government in addition to what it would pay to the seller. The guidelines state that if a telecom company is acquiring another telecom company, which owns spectrum allotted by the government, the acquirer has to pay the price difference to the government. This nationwide spectrum is now worth at least Rs10,000 crore and it pushes up the cost of acquisitions in the sector. This clause affects only 57 licenses. These are Aircel (14), Vodafone (7), Idea (2), Tata (19) and Reliance (15). The M&A guidelines must not be faulted for the sake of these 57 licenses, because they are at fault and by increasing the decibel level misguiding the government. 
 
The new M&A guidelines also limit the exit options for new entry makers, and this suggests that they will need to revisit their strategies. These guidelines clearly state that there is a lock-in period of three years, during which the telecom company cannot sell its spectrum. Therefore, an acquirer will have to run the acquired company as an independent entity till the lock-in period gets over. It is understood that economic benefits of an acquisition can occur only after a merger. These circumstances have dampened the eagerness for mergers and acquisitions in the sector.  The telecom companies are urgently hoping for clarity in regulatory matters and rationalisation of taxes, since the new government has come in.
The industry has also been complaining about time-consuming procedures and delayed approvals by the Department of Telecommunications (DoT). 
 
The failure of the Bharti Airtel-Loop deal earlier this year reiterates what the industry has been saying for a very long time about the regulatory clarity needed for merger and acquisition guidelines to ensure that deals like these do not fall through and the customers are not left in limbo. However, when dealt with this case in particular, it never looked like a case of a typical merger. TRAI’s opposition in this matter probably reflects the confusion surrounding telecom mergers in the present system, but also the sudden shutting down of operations by Loop sends out a very negative image of the industry. There have been many mergers in the past and the licence/ spectrum transfer is probably the most essential part of the deal, given that spectrum is a finite resource and the demand is always high. The Loop sale should have been easy because the licence was not being transferred, and it was only the customer base and other assets mentioned when the deal was struck that were being transferred to Bharti Airtel. There is no doubt that ambiguity prevails in the current system but there is also a possibility of this merger being a bad business decision rather than a victim of policy paralysis at the government level. 
 
India's telecom sector is one of the most regulated industries, where cost of airwaves is far higher than that for its international counterparts, but then these spectrum prices are determined through a transparent e-Auction. The industry has been demanding lower base prices for airwaves, such that it can take telephony and data services to people countrywide. Telecom companies want the Indian government to not charge hefty upfront payments from the industry because of airwaves but should allow the industry to grow, which would bring higher profitability and, in turn, mean more taxes for the government. There is need of urgent consolidation in the telecom sector to continue in various forms, be it in terms of market consolidation, legal consolidation, network and asset sharing, etc. The new government should mainly focus on improving service quality and restoring investor confidence. Telecom companies remain hopeful that the new government will aid them in helping maintain a long term clear, stable, development oriented and investor friendly policy regime, which recognises the long term nature of the investments and long project maturity requirements of the telecom sector.
 
Telecom has become an integral part of our daily life. The interest of the consumer must be kept at par with the growth of the entire industry. It is a given, that by keeping one side happy at the cost of the other will negatively impact the sector in the near future. Therefore, it is absolutely crucial to sustain competition within the sector. There are probably plenty of inadequacies and ambiguities in the laws and regulations, and in the powers of the regulatory bodies. But, it is essential that the regulatory bodies formulate boundaries for themselves and ensure that they manage to create a healthy and efficient business model for the telecom sector. There might be issues regarding overlap between competition policies/ laws and regulatory authorities. Regulation of an industry has three primary dimensions- technical, economic and competition, and there should be a strong framework to create systems to ensure overall co-operation in all these areas. 
 
(BK Syngal is former CMD of erstwhile Videsh Sanchar Nigam Ltd (VSNL). He is a B Tech (Hons) and M Tech from IIT, Kharagpur, C Eng (UK), MIEE (UK) and Sr MIEE (US). He is also a member of the London Court of International Arbitration.)

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COMMENTS

Veeresh Malik

1 year ago

This essay does not appear to put forward the point of view of the end customer - the small man or woman who pays the bills. For them, the more the competition, the better the deal. Simple as that.

Large corporate mergers and the rest are not priority.

Simple Indian

1 year ago

The telecom sector should have been accorded priority as infrastructure building sector, to make both GoI and private sector firms have a healthy partnership in developing the sector for far-reaching impact on overall economic growth. Communication, particularly IT-based, is key to growth of our economy in these times, and having a mobile service is key to better and faster communication at all levels. Govt can do a lot more by reviewing and revising its M&A policy and enable private sector firms consolidate for offering better services to the masses. Got could even incentivise private telecom firms to setup services in rural areas which lack much-needed mobile services, as State-owned BSNL is barely able to meet the demand or offer reliable services.

With Israeli help, agriculture to be Goa's next Make in India story
Goa Chamber of Commerce and Industry (GCCI) president Narayan Bandekar said that the state would do well to tap crop, post-harvest technologies and water management from a nation known for world class agri-technology
 
After defence, Goa's next Make in India footprint could be in the agriculture sector even as industry captains and politicians in the state look to learn lessons from Israel's agriculture success story.
 
Goa Chamber of Commerce and Industry (GCCI) president Narayan Bandekar said that the state would do well to tap crop, post-harvest technologies and water management from a nation known for world class agri-technology.
 
"Of course, agriculture is an area which we are looking to start a Make in India project with Israel's help," Bandekar told IANS after a meeting here with Israeli consul general in Mumbai David Akov.
 
He also said that GCCI was discussing a few agriculture-oriented projects with the state government and that a final decision would be taken soon.
 
While former chief minister Manohar Parrikar's elevation to New Delhi as defence minister has already yielded a Make in India contract to a central government-operated shipyard in Goa to manufacture eight minesweepers, Goa Speaker Rajendra Arlekar said that Israeli help should be sought to infuse life in the state's stagnant agriculture sector.
 
"There should not be any room for any questions. We wanted to work together. That is the reason he (Akov) is here," Arlekar said of the diplomat's visit to the state.
 
Agriculture in Goa comprises cultivation of crops like paddy, cashew, coconut and seasonal vegetables and pulses, and provides livelihood support to nearly 12 per cent of the state's 1.5 million population.
 
Escalating real estate prices, high labour costs and farm share-holdings shrinking with every generation has however made agriculture a less attractive proposition as compared to mining, tourism and employment in the service sector.
 
Investment in agriculture and water technology, according to Akov, could help make farming in Goa competitive.
 
"We could have ties with either the government or research organisations here in Goa... there are other private institutions (in Israel) which could be relevant for the specific kind of agriculture here. Some of them involve technology which could change and improve the crops here," Akov said.
 
The consul general also said that Maharashtra Chief minister Devendra Fadnavis, whose state incidentally sees the highest percentage of farmers' suicides, had travelled to Israel in April to seek out technology which deals with water and agriculture management.
 
Despite a desert accounting for nearly half of Israel, the country is known for its cutting-edge agriculture technology which has helped it to produce as much as 95 per cent of its domestic food requirements.
 
"Eighty-five percent of Israeli waste water is recycled and used for agriculture," Akov said.
 
He also said that by first starting to work together in the agriculture sector, both Goa and Israel could also start looking at other areas of cooperation, dropping hints at increasing cooperation in the tourism, dairy and water management sectors.
 
Ever since the Bharatiya Janata Party (BJP)-led coalition government came to power in 2012, Goa has been actively wooing Israel to resurrect its agriculture story.
 
In 2013, a state government delegation had travelled to Israel to interact with the country's agro-industry and dairy experts.

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COMMENTS

amnon ofen

1 year ago

Israel and Goa can collaborate in the Agricultural sector in order to upgrade its farmers situation.
The challenge is hot to it to the small shareholding farmers in India and in Goa particularly.
This means to use more efficiency technology , like Drip Irrigation which not only save water and fertilizers but also giving 3 time more income than other systems as Flood Irrigation. Another Israeli technology to be use and implement is to grow under plastic such Green House , Tunnels which would be able to grow during the monsoon raining
and through all the year. Most important to know is that key for the success of the growing of Goa Agriculture is the Agronomic Knowhow and the backing to the Farmers.
The government have to take care in this aspects and to invest and to bring this Agronomic Knowhow by establishing a Training & Demonstrations Agro Center , to enlarge the "Extension Services" to the farmers , giving subsidies to farmers to shift to more advance and economic technologies systems and working close with the Agro companies and the Private Sector. We at NaanDanJain, Israele and Jain Irrigation India doing and it India in the last 20 years all around India and would like to collaborate with the Goa Authorities
In upgrading the Agriculture Sector and Farmers at Goa
Warm Regards- Amnon Ofen , Director , NaanDanJain Irrigation , Israel.

Coutinho

1 year ago

Being a local Goal, first get the draconian agricultural land laws fixed esp. Mundkarial Act and Tenancy act started by erstwhile first Chief Minister of Goa...Mr. Bandodker which is completely against Land owners... Then talk about agriculture...

Moneylife IMPACT: SEBI bars VPS Advisory from offering PMS, collecting funds from investors
Moneylife wrote about VPS Advisory that was promising 20% assured return from stock trading. Taking cognisance of the article, SEBI initiated a probe and after two years, barred the firm from offering PMS and collecting money from investors
 
Two years after Moneylife wrote about an advisory firm promising 20% return from stock market trading, regulator Securities Exchange Board of India (SEBI) has taken action against VPS Advisory Services and its proprietor Varun Pratap Singh. In an ex-parte order, SEBI has asked VPS Advisory and Singh not to collect funds and offer portfolio management services (PMS) to clients without obtaining due registration from the market regulator.
 
In an order, S Raman, whole time member of SEBI said, "...steps have to be taken in the instant matter to prevent VPS from soliciting and collecting funds from investors and carrying on portfolio management services without due registration from SEBI. It becomes necessary for SEBI to take urgent preventive action. In light of the same, I find there is no other alternative but to take recourse through an ad interim ex-parte order against VPS for preventing it from collecting funds and offering portfolio management activities without obtaining registration from SEBI in accordance with the law."
 
Taking cognisance of Moneylife article published in June 2013, the market regulator states, "SEBI came across an article dated 25 June 2013, published in "Moneylife" regarding the activities of VPS Advisory Services wherein it was alleged that VPS had promised 20% returns on the investments. It was observed from its website viz., www.vpsadvisory.com that VPS offers various investment advisory services to the investors."
 
After going through all the documents and information available on record, SEBI observed that:
i. VPS is a proprietorship firm, established on 6 December 2013 by Shri Varun Pratap Singh as the proprietor and having its office at A-65, Govindpuri, Gwalior, Madhya Pradesh. However, VPS was running its business from Bangalore from A1, Ist Floor, Savithri Residency, No. 51 & 52, Yellapa Garden, Bangalore - 560085. Shri Varun Pratap Singh was a registered sub-broker of Sharekhan in the trade name Bangalore Consultancy Services till November 2013. 
 
ii. VPS vide letter dated 19 December 2013 and email dated 11 June 2014 stated that VPS provided Portfolio Management Services a few clients. It was also stated "PMS Services were started on the requests on the request of the clients. The Service was started from March 2012 and stopped in December 2013'. During this tenure we have published various clients’ demat account on our website which shows the performance of the PMS services."
 
iii. VPS is collecting funds from investors and manages their funds by investing in derivatives segment;
 
iv. VPS was providing advisory services in cash, derivative segments and also in commodity markets. Fee structure for availing advisory services was stated as Rs10,000 per month for cash and derivative segment and Rs5,000 per month for commodities.
 
v. Five employees were engaged in providing advisory services to 58 clients in last six months.
 
vi. Guaranteed returns were offered to its clients.
 
vii. Trading was done through the trading accounts of the clients availing PMS from VPS.
 
viii. PMS were offered by VPS since March 2012 and most of the clients were individuals. On the basis of the information furnished by VPS, it is apparent that PMS were offered to at least nine clients. From the analysis of Bank statements provided by various banks, it is observed that there are several deposits into the bank accounts from many clients, which are equivalent to the fees charged by VPS for various advisory services offered by VPS.
 
Raman, SEBI's whole time member, said, "As per VPS's own admissions vide emails dated 11th June and 14 July 2014, he used to provide portfolio management services to its clients. In this regard, it is also noted from the bank statements that various clients had paid fees to VPS for the services availed. In the light the above discussions and analysis, I conclude that the activities carried out by VPS clearly falls under the definition of "portfolio manager" specified under Regulation 2(cb) of PMS Regulations. Further, VPS was also offering guaranteed returns to general public. VPS is engaged in providing portfolio management services to investors without necessary registration for the same as mandated by Section 12(1) of Securities and Exchange Board of India Act, 1992 read with Regulation 3 of PMS Regulations."
 
This is not the first time we wrote about such firms big on ‘guarantees’ with promises of lavish and ‘assured’ returns. We had first exposed about the Stockguru scam, which promised investors 120% returns, way back in 2010, but regulators did nothing then. Three years later, Stock Guru duped investors to the extent of Rs1,500 crore, mainly because of no action from regulators. Stockguru was offering Rs22,000 on an investment of Rs10,000 in one year, and called itself investment advisors. Unfortunately, the lack of financial literacy and regulation meant investors fell for it. And lost money.
 

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COMMENTS

Vaibhav Dhoka

1 year ago

Congratulations Moneylife.Though it took two years for SEBI,it seems that it has to take cognizance.SEBI should come with data about loss incurred by investors in this firm and what punitive action is being taken to stop such entities from access to market.

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