DoT against lock-in for promoters equity; mergers on cards

The fast growing telecom sector is set to witness another round of mergers and acquisitions with the DoT recommending against lock-in of promoters equity, saying this would only hamper growth and competition.

The committee for finalising the views of the Department of Telecom (DoT) on lock-in period for promoters' equity is understood to have submitted its report in this regard.

"Despite exponential growth and intense competition, the telecom industry even after 15 years of operation is cash flow negative. Capital efficiency of the sector is an important pre-requisite for achieving consumer interest in a sustainable manner.

"Further growth and coverage of the rural and remote areas would entail huge investments. Against the backdrop of economic downturn, it is a challenge to raise investible funds, and there is a need for valuable foreign investments," the committee said.

"The lock-in period will only hamper growth of telecom market and competition," it added.

The issue of lock-in period was raised as some of the new players inducted new partners to garner funds for rolling out network across the nation.

If accepted, this would lead to consolidation of telecom industry and according to analysts the business of mobile services may not be commercially viable in case there are more than four or five operators in a circle.

At present, there are eight to nine mobile operators in each circle and with the teledensity especially in the urban areas crossing 30 per cent, the commercial viability of players is at stake.

The committee also observed that the concept of fly-by-night operators has not been experienced in the telecom arena so far, the report of the committee said.

To call some licencees as fly-by-night operators for undertaking transactions, which are well within their licence terms, "is unfair and there is no need to impose any new condition on any of the access services providers," it added.

The paid-up capital and net worth requirement are prescribed to avoid non-serious and fly-by-night operators.

The committee, thus, recommended that there should not be any new condition regarding lock-in of promoters equity on any access services licensees for development of telecom sector in India.

Although some of the new players like Unitech and Swan telecom have raised funds by issuing fresh equity to foreign partners but with this recommendation, if accepted, would help others including Datacom and Loop telecom to achieve roll out obligations faster.