MERGERS AND ACQUISITIONS UNDER TELECOM

INDUSTRY

ABSTRACT
The reason why you feel connected with your loved ones, irrespective of the physical distance
between you is because of telecommunication. With the help of telecommunication we can talk to
people at a distance very easily. It is said that the whole world is sitting in a boat because of the
ease of communication these days. In this paper I have discussed how telecommunication
developed over the years. Everything has a history associated with its development and
telecommunication falls in the same category. What is the importance of telecommunication and
most importantly if we are studying something then where can we use this. Mergers and
acquisitions with respect to telecommunication, if there is usage of something that means
different money making strategies will be available. Mergers and acquisition is used to synergise
the current position of one or two companies. What is the procedure of that merger and
acquisition in general and in the telecommunication industry is being discussed along with
explaining about the authorities that play a very important role in the procedure of mergers and
acquisitions.

DEVELOPMENT OF TELECOMMUNICATION

Telecommunication industry is one of the most important and used industries in the 21st century.
It's not like we have witnessed rapid growth in the telecommunication industry. The literal
meaning of telecommunication is to communicate with a person from a distance. Centuries
before when the idea of telecommunication was first used, people used smoke and drums to
communicate to people at some distance, giving them signals by using senses of sight and sound.
Pigeons were used by several communities to communicate with their loved ones and other
people too. In the Middle Ages, beacons were often used at the top of hills as a means of relaying
signals. The disadvantage of beacon wires is that they can only carry one piece of information.
Therefore, it is necessary to agree in advance on the meaning of messages such as "enemy was
seen". A notable example of their use was the Spanish Armada, where a string of beacons
relayed a signal from Plymouth to London, signaling the arrival of the Spanish warship.

By the end of the seventeenth century, semaphore systems were seen in Europe. Then in 1878,
the phone, the proper mode of telecommunication was invented. The initial experiments with
telecommunication via electricity started in 1726 they did not prove to be successful as such. Not
only mobiles but emails, fax machines, telephone, letters are all modes in which we can
communicate with someone who is living far away. Today, India has around 1.2 billion mobile
users among which 750 million users have smartphones. A prominent study has estimated that
by the end of 2026, India alone will have 1 billion users who are using smartphones, due to the
advent of technology in the rural sector. Pandemic and lockdown imposed due to the coronavirus
is one of the major reasons for this growth. Lockdowns have forced people to go online and try
to complete all their tasks. Online transactions, orders, product deliveries and almost everything
concerned with purchasing and buying in the market.

Since the number of phone users are increasing, resulting in the companies which deal with the
telecommunication sector are earning immense amounts of profit and breaking records every
passing year. Apple, whose name is surprising to few, is one of the costliest product selling
companies in the telecommunication market. This company alone has earned a net income of
34.6 billion in the year 2021, as compared to just six billion it made in the year 2008. These
tables and statistics attached indicate the growth of these companies hailing from the
telecommunication sector and simultaneously the growth of the telecommunication sector.

IMPORTANCE OF TELECOMMUNICATION

1. Telecommunications is one of the most important infrastructures to guard from a security

standpoint. There are a variety of organisations that rely on telecom to offer safety,
ranging from natural disaster relief to military demands. Consider the following scenario:
The government spends a lot of money on communications infrastructure in order for
 security services to be able to counter threats and protect its citizens. Overseas sources
carry the possibility of security breaches and are thus untrustworthy.

2. People now have access to learning possibilities outside of regular schools because of
technology advancements. To do a search, read a lesson, or watch a how-to video on
nearly any subject, all you need is a computer, smartphone, and access to the
internet.Telecommunications are currently being used by some of the major schools to
offer long-distance or remote education. For students, this is incredibly cost-effective,
since it allows them to save money that would otherwise be spent on accommodation and
transportation. Furthermore, online courses give students the flexibility and independence
to balance their career and school responsibilities. For classmates and instructors to
communicate and share knowledge, social media has become a crucial tool

3. Previously, communities in country places were unable to acquire basic supplies. These
regions now can import goods and services via ships or aircraft, and regulate
development activities, owing to telecommunications. This kind of accessibility enables
our whole civilization to flourish and evolve.

VARIOUS SECTORS WHERE TELECOMMUNICATIONS PLAY AN IMPORTANT

ROLE

The telecom industry is equivalent to approximately $520 billion in yearly global spending. The
United States, with one of the world's largest telecom markets, is predictably the frontrunner.
This is excellent for our country since the telecommunications sector's expansion and
development boost the economy. So, what is it about the telecommunications business that
makes it so popular in the United States.
To begin, it includes the following subsectors:

i. Distribution of cable
ii. Satellite telecommunications Wholesale telecommunications resellers
Telephony, including Voice over Internet Protocol (VoIP)
iii. According to the Bureau of Labor Statistics, each of these industries
employs over 727,000 people and pays an average hourly wage of roughly
$37.

Many businesses now use cross-functional teams to work on new products, corporate initiatives,
marketing campaigns, and other projects. These teams are likely to meet on a frequent basis to
discuss the status of deliverables, share ideas, and handle any unanticipated obstacles that may
develop in order to guarantee that projects go as planned. Telecom services that provide these
teams with the technology they need to interact from any place, allowing for better productivity,
connectivity, and cooperation. Being able to use the internet at all parts of the day and night is an
important aspect of providing excellent customer service. Customer (and potential customer)
communication will strengthen brand loyalty, assist your team in building stronger relationships
with prospects and clients, and enhance retention. However, unless you have a reliable
connection, you won't be able to pull this off. People's communication and navigation of their
personal and professional lives have been profoundly revolutionised by telecommunication. This
business is expected to continue to develop due to the ever-present need for humans to interact
and communicate. Businesses may now use mobile communication to streamline workflow and
efficiency thanks to tablets and smartphones. Employees can utilise their mobile devices to
access certain programmes, react to emails, work on presentations, and participate in
teleconference calls.Telecom providers offer the platform for data to be communicated
electronically, whether wirelessly or via connected connections. Documents, analytics, reports,
emails, and anything else may be shared with your coworkers in the next cubicle, a customer on
the other side of the county, or one of your international offices.

MERGERS AND ACQUISITIONS

When two companies, company X and company Y merge, a new company comes into picture
whereas when one acquires the other, the left out one has to dissolve completely. In India, the
telecommunications industry is fiercely competitive. Smaller companies find it challenging to
compete with the big boys. Because the industry is becoming saturated, the major firms are
likewise interested in acquiring the clients of smaller businesses.
The telecom industry has seen significant technological advancements such as 2G, 3G, and 4G.
As a result, organisations are turning to mergers and acquisitions to attain learning economies.
Indian telecom conglomerates are purchasing smaller businesses in order to gain access to
cutting-edge technologies. In the Indian telecom industry, a company's brand name is extremely
significant. Mergers and acquisitions may be quite beneficial to smaller businesses. India, being
a large telecom market, has piqued the interest of numerous international businesses. Many
international players joined India due to the anticipation of expansion and profitability in the
Indian telecom sector. Foreign businesses have utilised mergers and acquisitions to grow their
footprints in India since it is difficult to start from scratch due to spectrum limitations and other
entry restrictions.
LEGAL FRAMEWORK ASSOCIATED WITH MERGER AND ACQUISITION IN THE
TELECOMMUNICATION SECTOR

1The National Telecom Policy of 2012 eased mergers and acquisitions in the telecom service
sector while maintaining enough competition. 100% foreign direct investment is permitted.
The licences will be merged for the corresponding service category. The provision of internet
service is allowed under an access service licence, and the combination of an ISP licence with a
services licence is also allowed.The combined entity's market share in a service region should be
less than 50%. If it is more than 35 percent (it was previously just 35 percent), it must reduce it
to less than 50 percent in one year. Both the subscriber base and adjusted gross income will be
taken into account when calculating market share. In a service region, the combined entity's total
spectrum should be less than 50%. There must be relinquished within one year if it is excess.
If an acquired firm possesses spectrum exceeding 4.4 MHz in the GSM band and 2.5 MHz in
CDMA after paying administrative price, an acquirer will have to pay the difference between the
auction-determined market price and the administration price. If any firm gains "substantial
market dominance" in any service area as a result of a merger or licence transfer, the TRAI's
Telecommunication Act of 2002 shall take effect. It will take actions to weaken its market
position.

COMPETITION COMMISSION OF INDIA

The Indian Competition Commission is in charge of ensuring free and fair competition in the
telecom industry. According to the Competition Act of 2002, which was revised in 2007, prior
authorization from the Competition Commission of India is required for the telecom industry,
and it has the authority to accept or disallow any investment outside India for outbound mergers
and acquisitions. Even so, several of the Competition Commission of India's regulations have
still to be announced.

SECURITIES EXCHANGE BOARD OF INDIA

The Securities Exchange Board of India has also published merger and acquisition guidelines for
the telecom sector:
Regulation 10: For mergers and acquisitions in the telecom industry, a public statement must be
published if 15% of the voting rights are to be acquired.
Regulation 11: Anyone who holds less than 75% but more than 55% of the vote must make a
public notification.

TELECOM REGULATORY AUTHORITY OF INDIA

The telecom regulatory authority of India was created in 1997. TRAI oversees scale and
efficiency, as well as preventing monopolies from forming. Recently, the Telecom Regulatory
Authority of India (TRAI) advised that mobile phone firms consolidate their operations if the
combined stake of the new business is less than 60%. It has also advocated that in the event of a
merger or purchase, there should be no spectrum limitations, and the merged business should be
permitted to keep 25% of the airwaves in the region open. It has also requested that the
government impose a revenue share on telecom tower firms and internet service providers, which
presently has an 8% share and would raise industry output and income by roughly a thousand
dollars. The following are the precise provisions pertaining to the DOT's merger issue:
Prior approval from the Department of Telecommunication is required for the merging of
licences, which must be obtained before submitting the application.
In most cases, four weeks from the date of application submission is required to locate the
department of communication.
The combination of licences would have to be limited to the same service area.
Any merger, acquisition, or reorganisation that results in a monopoly should be prohibited.
The merging entity will be entitled to the entirety of the firm's spectrum.
If the combined firm gains considerable market power, the SMP operator's share of the relevant
market should be equivalent to 30%.

Department of Telecommunications Guidelines:

The Department of Telecommunications has been developing policies to help the

telecommunications industry flourish. Otherwise, the telecom department would have had to
lower the joint share entity to the extent of 35 percent, which might have resulted in a
monopolistic scenario. It should be noted that by imposing a greater limit on merged entities, we
may be allowing something that isn't allowed explicitly. It's also crucial to observe the rules,
such as those for Delhi-Mumbai. For other cities and locations, use 10Mhz and 8Mhz.
Foreign equity involvement and management control of telecom businesses have also been given
by the Department of Telecommunications:
● Foreign investment in the telecom sector is capped at around 49% under the 1994
national telecom policy, which was updated in 1999.
● The FDI limit in the telecom sector was set at around 74 percent in 2006, and other
guidelines were issued, including: a total of 74 percent investment can be made by
residents in holding or operating companies outside India, and a total of 26 percent
investment must be made by an Indian citizen, with management control remaining in the
hands of Indian residents.
● On a half-yearly basis, the licensee would be obliged to report the foreign company status
and attest that foreign investment is made within 74 percent of the total.
● The chairman, board of directors, and chief executive officer must all be Indian citizens,
and they should be chosen with the input of serious Indian investors.
 ● Any change in the shareholding pattern should be subject to the legislative restrictions,
according to the licence.
● A merger of an Indian corporation is authorised, however competition must be respected,
i.e. monopoly will not be tolerated.

THE FOREIGN EXCHANGE MANAGEMENT ACT,1999

The Foreign Exchange Management Act of 1999 also establishes rules, regulations, and circulars
with the goal of easing international commerce and payments while also encouraging the orderly
growth and preservation of India's foreign exchange market.The FEMA clause provides that
current and capital account transactions may be carried out with RBI's clearance, either general
or particular. The Foreign Exchange Management Act's two most essential clauses are:
Transfer or issuing of security by a person residing outside of India(2000): The Foreign
Exchange Management Act of 2000 allows for inbound mergers and acquisitions by a person
residing outside of India in the form of shares, debentures, convertible notes, and other securities.
In certain industries, 100% FDI is permissible, but in others, clearance from the Foreign
Investment Promotion Board is required.
Outbound investment is governed by the Foreign Security Regulation 2004 by persons resident
in India, while investment outside India is regulated by the Foreign Exchange Management Act
2004 (Transfer or issuance of any foreign security). Under the automatic method, Indian
enterprises can invest up to 400 percent of their net value in a joint venture or wholly-owned
subsidiary.

TYPES OF MERGERS
1. HORIZONTAL MERGER
A horizontal merger occurs when two firms are in direct competition with one another.
Horizontal mergers are used to gain market share, create economies of scale, and take advantage
of merger synergies.

The merger of HP (Hewlett-Packard) and Compaq in 2011 was a well-known example of a

horizontal merger. The successful merger among these two firms contributed to the creation of a
worldwide technology leader worth approximately US$87 billion.

2. VERTICAL MERGER
A vertical merger occurs when two firms that operate in the same supply chain join forces. A
vertical merger is the joining of firms in a company's manufacturing and distribution processes.
Higher quality control, greater information flow along the supply chain, and merger synergies
are all reasons for a vertical merger.
In the year 2000, America Online and Time Warner merged vertically for the first time. Because
of each company's various activities in the supply chain - Time Warner supplied information
through CNN and Time Magazine, while AOL delivered information via the internet – the
transaction was classified as a vertical merger.

VIDEOCON D2H - DISH TV

Videocon d2h Limited was merged with and became a part of Dish TV Limited. The
Commission had received a notification of proposed merger between Dish TV India Limited
(Dish TV) and Videocon D2h Limited (Videocon D2h) (Videocon d2h). Both parties were
involved in the provision of direct-to-home broadcasting services (DTH). During the deployment
of DTH services in India, it was discovered that there is horizontal overlap between the
companies involved. Also revealed was that Dish TV may have some structural ties to the Essel
group, inasmuch as some of the Essel group's entities, namely Zee Entertainment Enterprises
Limited Ltd. (ZEEL) and Zee Media Corporation Limited (ZMCL), are engaged, among other
things, in the business of developing television content, which is an upstream activity from the
company's primary business, that of distribution of television content. According to the
Commission, ZEEL and ZMCL are broadcasters, i.e. creators of television material, while SITI
Cable and Dish TV are distribution point operators (DPOs). The business operations of
broadcasters and DPOs are at various stages or levels of the production / supply chain, which
makes comparison difficult. As a result, the Commission analysed and investigated the vertical
link between ZEEL / ZMCL and Dish TV, as well as the potential consequences of this
relationship. Additionally, submissions from third parties, namely broadcasters and their rivals,
were received in this context, and they addressed a number of significant problems relating to
vertical integration of broadcasters and DPOs. Some of the most important concerns that were
brought up were the following:
As a result of Dish TV's affiliation with the Essel group, there is a vertical link between the
company and ZEEL / ZMCL. Furthermore, the resulting business, post-combination, would have
a market share of around 45 percent and might have a possible vertical connection with ZEEL /
ZMCL if the transaction goes through.
Following the amalgamation, the resulting firm may build bouquets of channels or position
additional channels to the detriment of broadcasters, depending on the circumstances.
3. As a consequence of the resulting firm's large market share after the merger, the broadcasters
would provide the resultant entity a significant discount as compared to their rivals.
Because Dish TV and Videocon d2h employ distinct technology for their DTH businesses, there
have been questions raised regarding the validity of the synergy claims resulting from the
planned merger.
When it came to the points highlighted, the Commission noted that both the MIB and the TRAI
had published extensive recommendations that, among other things, addressed the
aforementioned areas of concern identified by some broadcasters and rivals of the parties. The
Commission further observed that the TRAI's interconnect rules, tariff order, and quality of
service regulations, all of which are listed above, include measures to address the concerns made
by third parties about the interconnection regulations.
Among the requirements placed on DPOs and broadcasters by the current rules, the Commission
highlighted that the following obligations are relevant to the problems under examination. Every
distributor of television content is required to publish on its website the following information:
(i) total channel carrying capacity,
(ii) list of channels available,
(iii) number of channels for which signals have been requested from the broadcaster and an
interconnection agreement has been signed,
(iv) spare channel carrying capacity, and
(v) list of channels for which requests have been received from the broadcaster and an
interconnection agreement has been signed, according to the current regulatory regime.
Furthermore, the broadcasters set the maximum retail price of channels for sale to the general
public. The Commission also noted that the market, both at the level of broadcasters and at the
level of DPOs, is competitive, with a number of large competitors. In light of the above, the
Commission concluded that the regulatory environment and the existence of additional
competitors would guarantee that the vertical connection in the current issue would have no
detrimental effect on competition. As a result, the Commission noted that both parties use
different technologies for their DTH operations, and that because there is no technical
interoperability of set-top boxes and dish antennae among the DPOs, customers of the respective
parties may be forced to bear the costs of such technical realignment. Therefore, the Commission
communicated its concerns about the proposed merger to the parties involved. A voluntary
change was submitted in this respect, noting that the parties would be responsible for any costs
associated with technical readjustment, rather than the consumers who would be responsible for
such expenses. They also agreed to provide a compliance report every five years for the next five
years. Following the parties' submission of an undertaking, the Commission accepted it and
authorised the transaction.

3. MARKET EXTENSION MERGER

A market-extension merger brings together firms that provide similar goods or services but do so
in separate markets. A market-extension merger aims to provide access to a broader market and,
as a result, a larger client/customer base.

RBC Centura's 2002 merger with Eagle Bancshares Inc., for example, was a market-extension
transaction that aided RBC in expanding its activities in the North American market. Tucker
Federal Bank, one of Atlanta's largest banks with over 250 employees and $1.1 billion in assets,
was owned by Eagle Bancshares.

4. PRODUCT EXTENSION MERGER

A merger between firms that sell comparable products or services and operate in the same
market is known as a product-extension merger. The merging firm can group its items together
and get access to more consumers by using a product-extension merger. It's vital to highlight that
both firms' products and services aren't identical, yet they are linked. The key is that they use
comparable distribution channels and production processes or supply chains that are similar or
linked.

The combination of Mobilink Telecom Inc. and Broadcom, for example, is a product-extension
merger. Both firms are in the electronics sector, and the merger allowed them to integrate their
respective technology. Mobilink's 2G and 2.5G technology were combined with Broadcom's
802.11, Bluetooth, and DSP products as a result of the merger. As a result, the two firms are able
to market complementary items.

5. CONGLOMERATE MERGER
A conglomerate merger is a merging of two or more unrelated firms. Pure conglomerate mergers
and mixed conglomerate mergers are the two forms of conglomerate mergers.In a pure
conglomerate merger, firms that are completely unconnected and operate in different
marketplaces unite. Companies wanting to extend product lines or target markets join together in
a mixed conglomerate merger.Because the two businesses operate in entirely separate markets
and offer unrelated products/services, the largest risk in a conglomerate merger is an abrupt shift
in company operations as a result of the merger.
For instance, the Walt Disney Company and the American Broadcasting Company (ABC)
merged to become a conglomerate. The Walt Disney Firm is a media and entertainment
company, whereas the American Broadcasting Company is a commercial broadcast television
network in the United States (media and news).

WAVE OF MERGER AND ACQUISITION IN THE UNITED STATES

FIRST WAVE
The first merger wave began during the 1883 Great Depression, peaked between 1898 and 1902,
and terminated in 1904. Despite the fact that all major mining and manufacturing industries were
affected by these mergers, certain industries clearly showed a greater rate of merger activity. The
initial wave of mergers mostly consisted of horizontal pairings. The many horizontal mergers
and industry consolidations of this era frequently resulted in a market structure that was close to
monopolistic. As a result, this period is noted for its contribution in the formation of enormous
monopolies. This time period is also connected with J. P. Morgan's founding of U.S. Steel, which
joined Carnegie Steel, created by Andrew Carnegie and overseen by Carnegie and Henry Clay
Frick, with Federal Steel, which Morgan controlled. By the end of the first massive merger wave,
there had been a significant rise in the degree of concentration in American industry. In other
industries, such as the steel industry, the number of enterprises has decreased considerably, and
in some areas, just one firm has remained. It's ironic that monopolistic businesses arose in the
aftermath of the Sherman Act's enactment. However, in addition to the Justice Department's
limited resources, the courts were originally hesitant to read the Act's antitrust provisions
literally.
SECOND WAVE
The first and second merger waves, according to George Stigler, a Nobel Prize–winning analyst ,
were "merging for monopoly" contra "merging for oligopoly." Several industries were merged
during the second merger wave. The outcome was frequently an oligopolistic industrial structure,
rather than monopolies. The pattern of consolidation established during the first merger phase
remained into the second.
THIRD WAVE
The third merger wave saw a record-breaking amount of merger activity. This was aided in part
by the strong economy. During this period, known as the conglomerate merger period, it was
typical for relatively smaller corporations to seek acquisitions from larger ones. During the two
previous rounds, on the other hand, the majority of target enterprises were substantially smaller
than the acquiring corporations.

PROCESS TO FOLLOW WHILE APPLYING FOR MERGING AND ACQUISITIONING

In India, the Companies Act of 2013 specifies the whole mergers and acquisitions procedure.
The study of the firms is done throughout the mergers and acquisitions process, which includes
accessing the company's information, reading over its insights, and coming to a decision on how
to conduct the mergers and acquisitions process.

The successful and comprehensive execution of a mergers and acquisitions process comprises a
strategy that is organised to maximise profit while minimising risk.

1. Examine the Object Clause in the Memorandum

When considering an M&A in India, the first and most important step is to review the company's
memorandum of association in order to conduct a search and determine if the merger authority is
granted or not.

2. Share Your Thoughts With The Stock Exchange

It's a good idea to notify the stock exchange that a proposed merger and acquisition is taking
place and to transmit any essential papers, such as notifications, resolutions, and orders, to the
stock exchange within a certain amount of time.

3. Make a proposal for a merger.

The Boards of Directors of both companies will present an affirmation on the merger proposal's
draft and also approve a resolution approving key administrative personnel and other
administrators to take the matter further.

4. Make a request to the High Courts

Following the Board of Directors' approval of a plan, merger organisations should file an
application with the Hon'ble High Court of the specific state where the organization's
headquarters is located.

5. A Notice To Shareholders And Creditors Has Been Sent

With the High Court's prior consent, a notice of the upcoming meeting should be delivered to all
of the organisations' investors and creditors, with 21 days of timely notification necessary. The
notification will be distributed in two papers, one in the state's vernacular language and the other
in English.

6. Orders are filed with the Registrar of Companies.

Within the time frame specified by the High Court, the genuine verified copy of the request for
the state's High Court must be documented with the registrar of businesses.

7. Both companies' assets and liabilities should be combined.

The assets and liabilities of both organisations should be transferred to the combined entity.

8. Issue of Shares and Debentures for Subscription

When the merging companies are registered as a separate legal entity, they can issue offers and
debentures after being listed on the stock exchange.

NEED OF MERGER AND ACQUISITION ADVISORY

Mergers and acquisitions are a fantastic method for a company to grow, but they come with a lot
of complicated stages and procedures that need to be followed by all parties involved in order to
build the new company.

For M&A to take place, the Companies Act, 2013 should be followed, with input from the Court,
SEBI (Securities Exchange Board of India) in the case of listed companies, the Central
Government as an Official Liquidator (OL), and the Regional Director of the Ministry of
Corporate Affairs, among others. Because there are so many people involved, the process can
take a long time, be repetitive, and even be troublesome. As a result, it is prudent to consult a
specialist for mergers and acquisitions or to use mergers and acquisitions consulting services, as
the method involves strict repercussions of laws and regulations, which might cause problems in
the future. Various Mergers and Acquisitions consultancy firms guide their clients through this
transformation process, which includes complex financial, legal, and accounting challenges.