By R. JAI KRISHNA
NEW DELHI -- India's highly competitive telecommunications industry may start consolidating by the middle of 2012 after new rules on mergers and acquisitions are unveiled by December-end, the sector regulator said.
J.S. Sarma, chairman of the Telecom Regulatory Authority of India, said in a recent interview that the federal government is considering the regulator's views on the new M&A rules as part of a broad telecom policy to be announced soon.
India is the world's second-largest telecom market with more than 850 million users, but operators are bleeding due to stiff competition that has kept tariffs at rock-bottom levels. Competition intensified from 2008 when licenses were given to seven new companies, doubling the number of operators in most areas.
While a few older players have raised tariffs in recent months, newer ones don't have such pricing power and continue to bleed. Current rules make M&A deals unattractive by limiting the bandwidth and the number of users a merged firm could hold. Analysts expect the new policy to provide newer players an exit route and bigger players the opportunity to add to their user base.
The regulator has proposed up to six operators in a service area, compared with as many as 14 now, a market share of up to 30% for a merged company and a bandwidth cap higher than specified in the current rules.
Mr. Sarma also said he is "bullish" on the sector's prospects, despite the competition and ongoing investigations into alleged irregularities in the sale of licenses in 2008.
He said the falling prices of smartphones and high-speed Internet-enabled devices such as tablet computers will increase demand for higher revenue generating third-generation, or 3G, and wireless broadband services.
The regulator is also likely to finalize by Dec. 15 a policy to allow fourth-generation services, Mr. Sarma said, adding that there is a "reasonable" possibility that 4G bandwidth is auctioned. He expects commercial 4G services in India to begin in the second half of 2012.
The 4G technology, while in its infancy, holds the promise of Internet speeds at least five times faster than typical 3G networks now common in Europe and the U.S.
Mr. Sarma also said the sector needs at least 500 megahertz of additional bandwidth by 2015 to keep pace with growth. The additional spectrum could fetch about 10 trillion rupees ($218.81 billion) for the government, he added.
Last year, the government garnered about $22 billion through an auction for 3G and wireless broadband bandwidth.
Source: The Wall Street Journal