NEW DELHI | MUMBAI | KOLKATA: The government is considering steps to allow a smoother exit for weaker telcos at a broader policy level as part of revised mergers and acquisition rules, top officials said, a day after the proposed merger between Reliance Communications and Aircel fell through due to legal and regulatory uncertainties.
A senior official at the ministry said that the solutions for aiding the sector would have to be done on a “policy level rather than on a company-specific basis to ensure a level playing field,” and with the view to keep the sector alive.
A Telecom Regulatory Authority of India (Trai) official, when asked on measures that the regulator can suggest to the government for more congenial exit for carriers, said, “We already have the consultation paper on ease of doing business and that should include this (of smoother exits in M&A) particular issue.”
The RCom-Aircel merger, announced in September 2016, faced delay of several months owing to regulatory requirements and legal objections which meant the Anil Ambani-owned telco was running out of time to meet a December 2017 deadline set by lenders to reduce its debt under a strategic debt restructuring (SDR) process.
Currently, weaker telcos — straddled with huge debt — don’t have too many options to exit the business without taking huge financial hits. They can at best enter into an M&A or sell their most prized asset — spectrum.
If they fail to do so and are unable to sustain their operations, they would need to surrender the spectrum to the government without getting a refund and shut the operations entirely, taking huge financial hits in the process besides leaving thousands of employees jobless.
RCom and Aircel — with debt of nearly Rs 47,000 crore and around Rs 20,000 crore, respectively, falling revenue, widening losses and dwindling cash flows — aren’t the only ones facing challenges.
Tata Teleservices Ltd, the mobile arm of the Tatas, has a Rs 34,000 crore debt. It has failed to find a buyer for years and is now said to be looking at all options, including the extreme step of possibly shutting down the business.
“As far as Tata Teleservices is concerned, the group is examining all options at this point in time,” a Tata Sons spokesperson said. “It’s not going to be very easy for them (RCom and Aircel to survive),” said a government official.
“This (merger) was the best way out (exit), now we’ll have to see what options we can come up with,” said another senior official who did not want to be named. “It is very unfortunate”. The official, however, didn’t elaborate on the steps the telecom department could be considering.
RCom and Aircel say they are exploring other options. The former employs nearly 5,000 employees and the latter has 8,000 employees.
An RCom counsel at an earlier hearing in the National Company Law Tribunal had said that the merger would have prevented assets worth Rs 1 lakh crore from being declared obsolete. Industry executives and experts say that the government’s policies should include faster process of approving ongoing deals, besides alleviating the debt situation in the sector, which is the root cause of the financial stress. The sector currently has debt of some Rs 5 lakh crore and employs roughly 2.7 lakh people directly or indirectly.
“The principal concern is about time-bound clearances from the various entities involved,” said Rajan Mathews, director general of Cellular Operators Association of India, which represents all major carriers. “At present, there are about six major governmental agencies that have to give clearance before an M&A takes place. The recent bankruptcy law has added a further degree of complexity due to its newness and added requirements when debt is a factor,” he added.
At a more fundamental level, the mergers have fallen through because of debt issues. “The government needs to address the issue of debt and revenue, because the flip side of debt is your ability to repay… Enhancing the revenue stream can fix the ability to repay. Those are the moving pieces which the government has to address with policy,” said Mathews.
The industry also wants clarity around enhancing spectrum holdings limits — which has been referred to the regulator — and issues around multiplicity of licence areas, and licences which need to be resolved, he added.
The reactions came a day after RCom cited legal and regulatory uncertainties, competition, lack of backing from banks, and alluded to sabotage by ‘vested interests’ as reasons for calling off the merger with Aircel. The deal announced in September last year, along with sale of its towers to Brookfield, would have reduced its debt by around 60%.
“To me, it clearly looks downhill from here for both RCom and Aircel. Both companies have no competitive edge versus the biggies, no financial flexibility and banks also seem in no mood to lend and support them, given their massive debt levels,” said Nitin Soni, director at rating agency Fitch, adding that the “very survival” of both companies was now at stake.
Sandeep Das, a senior adviser at Analysys Mason, a global consulting and research firm specialising in telecoms, media, technology and digital services, said the weaker telcos have the option of shrinking their operations and focussing on a few circles where they are strong or operate as a mobile virtual network operators (MVNO) by buying bulk minutes from larger telcos.
“So, consolidate and cut losses, financial exposure, where possible. Both RCom and Aircel (South and East) have regional strengths.” Aircel is expected to have a townhall this week addressing the merger, its fallout and the path ahead, said people aware of the plans.
Another person said that RCom may shut down the mobility business latest by March, but the company denied it, saying it will focus on 4G-based operations.
Aircel did not respond to ET’s emails as of Monday evening.