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This article is written by Abhishek Dubey, pursuing a Diploma in M&A, Institutional Finance and Investment Laws (PE and VC transactions) from Here he discusses “Merger and Acquisition In Telecom Sector: Specific regulation to be considered”.



Telecom industry is one of the most profitable and rapidly growing sectors in India. The Telecom sector deals with communication media such as mobile phones, telephones, and fixed-line phones, etc. The merger and acquisition activity is growing in the world and the aim behind this is to attain competitive benefits.

The merger and acquisition in the telecom sector are considered to be horizontal mergers, because both the companies deal in the same line of business.

In the majority of developed and developing countries, mergers and acquisitions in the telecommunications sector have increased which also resulted in the creation of jobs.

India is the second-largest country after China on mobile phone users. There are more than 500 million subscribers. In the last decade, India has witnessed the emergence of at least 15 sectors. 

Specific regulation for merger and acquisition in the telecom sector in India 

The merger and acquisition in the telecommunication sector are supervised by the regulatory authority of that particular country. For example, the Telecom Regulatory Authority of India is a supervisory authority in India. The authority keeps an eye so that no monopoly is formed, telecom sector is subject to many guidelines and provisions, for example, Companies Act 2013, Income Tax Act 1961, etc.

1. Telecom Regulatory Authority of India 

The telecom regulatory authority of India was established in the year 1997. TRAI manages scale and efficiencies and also makes sure that no monopolies are formed.

Recently, TRAI recommended that mobile phone companies could merge their operations if the combined share of the new entity is less than 60 percent. And it has also proposed that in case of merger and acquisition, there should be no spectrum caps and the combined entity will be allowed to hold available 25 percent of airwaves in that region. And it has also asked the government to impose revenue share on telecom tower companies and internet service providers and currently, there is an 8 percent share which will increase the industry output and revenue will be around a thousand crores annually.

Guidelines of the department of telecom

The department of telecommunication has been formulating various policies for the growth of the telecommunication sector.

Telecom department reduced the combined share entity to the extent of 35 percent otherwise this could lead to a monopoly situation. It is to be noted that by providing a higher limit on merged entities, we may be permitting indirectly which is not permitted directly.

And it is important to follow the guidelines such as for Delhi-Mumbai 10Mhz and 8 Mhz for other cities and areas.

The specific provision related to merger issue by DOT are: 

  • Prior permission has to be taken from the Department of Telecommunication for the merger of license and after submitting the application.
  • In normal situations, 4 weeks time needs to be given for finding the department of communication from the date of submission of application.
  • The merger of licenses would necessarily be restricted to the same service area.
  • Any merger, acquisition, and restructuring leading to monopoly should not be permitted.
  • The merger entity shall be entitled to the total amount of spectrum held by the entity.
  • In case the merged entity becomes significant market power the SMP operator share should be equal to 30 percent of the relevant market.

The department of telecommunication has also issued guidelines on foreign equity participation and management control of telecom companies:

  • The 1994 national telecom policy revised in 1999 has given the cap on foreign investment in the telecom sector for about 49 percent. 
  • In 2006 FDI limit in the telecom sector is about 74 percent and other guidelines issued were:
    • The total 74 per cent investment can be made by the resident in holding or operating companies outside India and 26 per cent has to be made by an Indian citizen and management control will also be in the hand of Indian resident.
    • The license would be required to disclose the foreign entity status and certify that foreign investment is made within limits of 74 percent on a half-yearly basis.
    • The chairman, board of directors and chief executive officer shall also be a resident of India and they should be appointed in consultation with serious Indian investors.
    • The license should also provide that any change in the shareholding pattern shall be subject to the statutory requirements.
    • The merger of an Indian company is permitted but at the same time competition cannot be ignored i.e monopoly will not be permitted. 

2. Foreign Exchange Management Act

Foreign Exchange Management Act 1999 also provides the rules, regulation and circulars with the objective of facilitating external trade and payments and promoting the orderly development and maintenance of the foreign exchange market in India.

The provision of FEMA specifies that current and capital account transaction which may be carried out on general or specific permission from RBI. The two most important provisions of the Foreign Exchange Management Act are:

  1. Transfer or issue of security by a person resident outside India(2000): The Foreign Exchange Management Act 2000 permits inbound merger or acquisition by a resident outside India in form of share, debenture or convertible notes, etc. IIn certain sector 100 per cent FDI is permitted and in certain sectors, it requires permission from the Foreign Investment Promotion Board.
  2. Foreign Exchange Management Act 2004 (Transfer or issue of any foreign security)Outbound investment is regulated by Foreign Security Regulation 2004 by the person living in India but investment outside India. Indian companies are permitted 400 per cent of their net worth under FDI under automatic route in a joint venture or wholly-owned subsidiary.
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3. Securities Exchange Board Of India

Securities Exchange Board Of India: It has also issued guidelines for merger and acquisition of the telecom sector:

Acquisition of share regulation 10: For merger and acquisition in the telecom sector, the public announcement has to be made for acquiring 15 per cent of the voting rights. 

Regulation 11: The person holding less than 75 per cent but more than 55 per cent is required to make a public announcement.

4. Competition Commission of India

The Competition Commission of India is responsible for free and fair competition in the Telecom Sector. The Competition Act made in 2002 and amended in 2007 specify that prior permission has to be taken from the Competition Commission of India for the telecom sector and it may allow or not allow any investment outside India for outbound merger and acquisition. Still, some of the regulations of the Competition Commission of India have still not been notified.

5. Due diligence in the telecom sector

Due diligence is one of the most important areas of the telecom sector. It gives the acquirer the right information about price.

Parts of due diligence are

Commercial due diligence

It examines the current market share, current revenue share, change in the system of license etc.

Financial due diligence

It examines the intangible assets and financial statement of the company etc.

Legal due diligence

It deals with the legal structure of the economy, their impact on the economy, the legal structure of the business, statutory regulations, list of legal cases filed against the company, partner agreement and intellectual property regulation,, etc.

HR due diligence

The investor analyses the total number of foreign employees coming to India, the salary of employees and chances of an increase in salary etc.

SWOT analysis

Analysis of the telecom sector in India:


India has a large population as well as a huge market base on the internet and therefore foreign players are easily entering the Indian market. 


Lack of infrastructure in rural areas results in a large cost for setting up the initial process. Achieving a break in these circumstances can be difficult.


In the existence of telecom companies are more in the cities, the merger and acquisition players can attract and accommodate more players and one can expect aggressive responses from the companies.


This sector requires more financial resources in the initial process. Entry fees and struggle to obtain loans from banks remains a threat. So it is important to have a good financial condition for investment in the telecom sector.

Case study of telecom sector

The first deal in merger and acquisition of the telecom sector was a sale of license by MAX group to Hutchison group of Hong Kong. The deal was about half a billion dollars and it brought huge success in telecom ventures. After that many deals happened in India. Vodafone acquisition of 10 percent equity in Bharti Airtel. Maxis acquisition of Aircel for US$ 1 Billion etc.


Thanks to globalization, liberalization as well as technology changes. Business firms now will have to face huge competition not only from India but also from foreign players. Merger and acquisition is a very difficult process as it is not only a merger of two entities but also a union of different cultures, attitudes, etc. Telecom mergers are a result of intense competition. It may be beneficial for the customer because of the constant innovations in the industry.

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