BUENOS AIRES (Reuters) - Telecom Argentina SA and cable TV provider Cablevision SA will have to return broadcast airwaves spectrum to the Argentine government if a proposed merger between the two companies is to be approved, a source with the country's Enacom communications regulator told Reuters on Friday.
Telecom (TEC2.BA) and Cablevision recently said they reached a merger agreement enabling them to offer so-called quadruple play services combining TV, Internet and fixed and mobile phone lines into a single package and realizing a key goal of President Mauricio Macri's telecom sector reforms.
But the new company would use a bigger portion of available airwaves than any single telecoms provider is allowed, exceeding the maximum allowed frequency limit of 140 megahertz, said the source, asking not to be identified.
Enacom and the National Commission for the Defense of Competition, or CNDC, both have to approve the merger, which would create a company with a market cap of about $11 billion, according to brokerage Itau BBA.
"Definitely, at one glance, there is an excess of the 140 megahertz limit that the combined company would have. This is the merger's first problem," the source said.
Radio airwaves have become an increasingly valuable commodity for wireless telecoms operators which need them to satisfy demand for video and music streaming among other data-heavy services.
Argentina's Communications Ministry plans to increase the maximum allowed megahertz limit to between 160 and 180, but that would still be too low for the estimated 220 megahertz that the combined company would have, the source said.
The excess frequency would have to be returned to the state, the source added. That step would be part of a broader regulatory review expected to take at least six months, the source said.
The merger of the two separate companies in which Mexican billionaire David Martinez holds stakes will require shareholder as well as regulatory approval.
Telecom Argentina is to issue 1.184 billion shares, leaving Cablevision shareholders with 55 percent of the combined company, the companies said in announcing the merger plan.
Shortly after taking office in December 2015, Macri signed a decree to allow phone companies to offer pay television services, an area that had long been dominated by Cablevision, an internet, cable TV and data transmission company that was previously part of Grupo Clarin (CLA.BA). Grupo Clarin, Argentina's largest media conglomerate, said last August it was spinning off Cablevision.
Writing by Hugh Bronstein; Editing by Christian Plumb