The TRAI is trying to assess the `sanctity’ of the 10% per cent cross-holding restriction clause for mobile operators.
Regulator is expected to come out with recommendations on licensing by Aug 15
NEW DELHI: The Telecom Regulatory Authority of India (Trai) is trying to assess the `sanctity’ of the 10% per cent cross-holding restriction clause for mobile operators, before finalising the recommendations for fresh licensing norms in the telecom sector, it is learnt. “The issue is being theoretically examined,” a Trai source said. The question being examined is, “why was a 10% cross-holding clause introduced in the first place”, the source added. The regulator is expected to come out with its recommendations on the licensing and M&A norms by August 15.
As per current norms of the Department of Telecommunications (DoT), no single mobile phone company can have more than 10% stake in two different cellular operators in the same circle. That is, such a player must restrict its stake in one of the operations to below 10%.
In recent times, the Tata group had to withdraw its stake in GSM player Idea Cellular because it also operates Tata Teleservices, a CDMA service. Also, UK-based Vodafone shed its 5.6% direct stake in the Bharti group, while retaining an economic interest of 4.4%, after it acquired a controlling stake in Hutch Essar early this year.
In the recommendations for a fresh licensing norm in the telecom sector, there would be two major areas of interest. One is whether changes would be introduced to the 10% cross-holding clause. Another area of interest is whether Trai would recommend a cap on the number of operators in a service area. Currently, there’s no cap. It is believed that Trai does not favour putting a cap on the number of operators.
Leading code division multiple access (CDMA) player, Reliance Communications, has argued that the 10% cross-holding restriction clause for mobile operators is not relevant. The company has said this while responding to the consultation paper issued by the Trai on licensing conditions and merger and acquisition (M&A) norms for the industry. “The cross-holding limit of 10% is now only drawing an arbitrary line in the name of competition,” Reliance has told Trai.
“The cross-holding restriction is also proving to be one of the major impediments for raising fresh capital by service providers,” the company has added. While almost the entire wireless industry has opposed the Reliance view on cross-holding restrictions, BPL Mumbai (which is now being run by Essar) has pointed out that there’s “no justification in defining the substantial equity as 10% of the total shareholding”. BPL is a global systems for mobile communications (GSM) operator.
According to the company law, a legal entity holding up to 25% shares of a company cannot bar any proposal/special resolution of the company. “We therefore feel that the maximum limit of 10% holding can be safely increased to 24% without in any way compromising the objective of adequate competition in each service area,” according to BPL.
Also, BPL has added, “since M&A of the companies is permitted, there should be no bar for a company to hold equity in excess of 24% in another access service company in the same service area subject to the M&A guidelines being satisfied.” The Cellular Operators Association of India (COAI), which represents GSM players, wants the government to continue with the 10% cross-holding restriction. CDMA player Tata Teleservices has supported the 10% clause.
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