It is bad news for telcos like Aircel and RCOM who may be looking for selling their equity and exit the market. The new M&A guidelines will make acquisitions difficult as the acquirer will have to pay the market price of spectrum in case the operator was issued spectrum at administered price.

This will make M&A unattractive for companies that have only spectrum to show as its valuation.

This was approved by the telecom commission, the highest decision making body in the telecom sector, today.

“This condition is good for the industry as only good companies that have created value for customers will emerge as winners,” said B. K. Syngal, former CMD of Videsh Sanchar Nigam Ltd (VSNL).

This means that an operator will get value for the business it has created. New telecom operators like Videocon, Telenor, and Sistema Shyam Teleservices Ltd (SSTL) would be major gainer, while incumbent service providers including Reliance Communications (RCOM), Tata Teleservices and Aircel would be major losers as their valuations would go down.

Under the new M&A guidelines, a company buying an existing operator will have to pay the government the differential of the administered price at which spectrum was allotted to incumbent and the market price of the spectrum.

The new operators – SSTL, Videocon and Telenor got spectrum through auction. Hence, the new guidelines would not have any impact on their valuations due to this condition, in case they want to exit the market. Their valuations become attractive as the prospective buyers would not have to pay anything to the government.

However, many incumbent operators got spectrum through administered prices. Hence, any prospective buyer will have to pay the difference between the market price of spectrum and the price at which these operators got spectrum to the government. This would decrease their valuations.