Facilitate M&A norms to attract investment in telecom sector, says COAI

NEW DELHI: Telecom lobby group Cellular Operators Association of India (COAI) has blamed “discouraging M&A guidelines” issued by the previous UPA II government as the main reason for subdued investments in the telecom sector, and sought nimble policy changes.

“No major merger and acquisitions investment activity took place last year due to restrictive policy norms, issued by telecom department in February 2014,” said COAI secretary general Rajan S Mathews, adding that investors have cited “execution risks” in India.

The mandate for the merged entity to make payment of the differential between the market determined price and the administrative price for the administratively allocated spectrum held by the acquired entity along with spectrum caps, is limiting consolidation in the sector, COAI said.

In September 2014, the Telecom Regulatory Authority of India (Trai) opined that M&A guidelines should to be revisited by the new government as it was highly imperative for sector’s consolidation.

Telecom minister Ravi Shankar Prasad had earlier said that the government was ready to rework M&A norms and constituted a committee headed by telecom secretary Rakesh Garg to revise the policy.

COAI said that several factors have challenged the industry’s performance in terms of investments last year which “need to be addressed urgently”.

“Investors had said that execution risks in India were much higher than in any other country,” Mathews said, and added that retrospective tax issues further create an unfavorable environment for companies to invest in the Indian telecom market.

The retrospective amendments have emerged as a major bottleneck for investments in the sector. Any retroactive change in tax laws fosters a sense of uncertainty in the business which dampens enthusiasm for investment and M&A activity.

Government has however provided clarity over share transfers to parent companies by Indian subsidiaries, with its decision not to appeal against Bombay high court October 2014 order in the Vodafone case.

On the other hand, the retrospective taxation brought in by the previous UPA government in connection with a separate Vodafone case relating to its entry into the country in 2007 is currently under international arbitration.