Whats blocking AT&T's India plans!

Just a month away from 3G auctions in the country and foreign players are still looking for ways to enter the Indian market. After the Department of Telecom refused to review the decision to impose an entry fee of Rs 1,650 crore on new players wanting to bid for 3G spectrum, foreign players have now approached the Government to relax the merger and acquisition norms. Foreign operators want DoT to allow them to merge with an existing 2G operator if they manage to win 3G spectrum.
According to current M&A norms, new licence holders can merge or acquire only after 3 years. Last week DoT’s Secretary, Mr Siddharth Behura, said the policy was not unfair to foreign players. He had listed out three options whereby a foreign player could enter the booming mobile market.
“International operators who win in the bidding for 3G spectrum will have three options — they can acquire a unified access service licence or acquire up to 74 per cent stake in an existing operator or merge their 3G licence with an existing 2G licensee,” Mr Behura had told reporters on Friday on the sidelines of an industry event.
However, foreign players have rejected all the three options on the grounds that it is unviable. If they acquire a unified access licence by paying Rs 1,650 crore after winning the 3G bid, they will not get any 2G spectrum along with it. With just 5 Mhz spectrum being given for 3G, it won’t be enough for them to compete with existing operators who may have both 2G and 3G spectrum to play with.
The second option is to pick up a 74 per cent in existing unified access operator who has 2G spectrum but that could cost a premium. Some of the new players are already being valued at $3 billion even without starting any services. The third option of merging their 3G licence with a new 2G operator is the best option.
But DoT needs to clarify whether foreign players can merge with a 2G player without having to acquire a unified access licence from the Government.
Since the M&A norms prescribe a 3-year lock-in period on new players, foreign players want DoT to allow them to merge with 2G players, after winning the 3G spectrum, without having to acquire a unified licence from the Government separately.
Foreign players have also urged DoT to re-look at the option of auctioning 2G spectrum in which case they can bid for it. In case DoT is not willing to change the M&A rules, they have suggested that the entry cost of a vanilla unified access without 2G spectrum should be just Rs 80 crore instead of Rs 1,650 crore.
Meanwhile, analysts are suggesting that international players should not participate in the auction process at present as their growth prospects are limited by regulatory and market factors. They should keep themselves out of the race for the time being and wait for a better time, suggests a recent report by research firm Strategy Analytics. Will AT&T keep away?