In Telenor deal, Airtel bridges gap with VodafoneIdea
NEW NUMBER Deal to help Airtel add 44 m subscribers, acquire more spectrum
In a move that is meant to bolster Bharti Airtel Ltd’s market presence in a rapidly consolidating telecom industry, the New Delhi-based company on Thursday said it will acquire Telenor Communications Pvt Ltd (Telenor India).
With Telenor’s acquisition, Airtel will add 44 million customers to its subscriber base, which will increase to 307 million, 84 million short of the combined subscriber base of Idea Cellular Ltd and Vodafone India Ltd.
Airtel also gets to acquire 43.4Mhz of spectrum in the 1800Mhz band in addition of 20,000 base stations and 2.6% revenue market share.
Telenor, on the other hand, will exit India for nothing, handing over the entire business to Airtel. The transaction is expected to close in the first quarter of 2017-18.
Telenor will receive zero cash and hands over the business on a debt free basis to Airtel, after refinancing the outstanding local debt. Airtel will also take on the residual future liabilities including around NOK2bn (Rs1600 crore) of spectrum and NOK5bn (Rs4,000 crore) lease obligations, Credit Suisse said in an investor note.
“The sale price is clearly very low for a business with 44m subs and NOK6bn revenues,” Credit Suisse said.
“And given the negative NPV (net present value) of the business at least it (Telenor) did not have to pay a big negative price to exit,” it said.
A Telenor spokesman said Bharti will not pay any cash under the deal but will instead take on the Telenor unit’s commitments to pay for licences and phone towers.
The acquisition will not lead to any impairment charges for Telenor either, the company said in a statement.
As of December quarter, Telenor had revenue and EBITDA of $160 million and $20 million, which is 4-5% and 1.5-2% of Bharti’s consolidated quarterly revenue and EBITDA, UBS Global Research said.
The acquisition comes as a shot in the arm for the New Delhibased company, whose dominance in the Indian market is under threat from multiple corners. While Reliance Jio Infocomm Ltd’s free services have eroded its profitability, the number two and number three telecom service providers, Vodafone India Ltd and Idea Cellular Ltd, have entered merger talks to create India’s largest telecom company, threatening to put an end to Airtel’s nearly 20-year-old dominance over the industry. The consolidation triggered by aggressive push from Mukesh Ambanipromoted Jio will leave only three telecom companies for future, experts have predicted, which means consumers will stand to lose competition slows down.
However, Airtel would look to capitalize on the time taken by both the Mumbai-based to merge and Telenor’s acquisition could be seen as first such step. Mint on 17 February first reported Airtel’s plans to take advantage of regulatory hurdles that Voda- fone India Ltd and Idea Cellular Ltd will face if their proposed merger goes through,
“As Telenor’s network was recently deployed, we believe large part of the base transceiver station (BTS) will be single radio access network (RAN) equipment which will be 4G ready and useful to Airtel. Post acquisition, Airtel’s revenue market share (RMS) would increase from 33% to 35.6%, closing the gap with Idea-Vodafone which could be at 42.3% (assuming the deal happens),” Kunal Vora, CFA at BNP Paribas, said in a note.
Telenor acquisition strengthens Airtel in markets such as Gujarat, Maharashtra, UP East and UP West in which it had lower RMS compared to its national average.
The company said these circles represent a high population concentration and, therefore, offer a high potential for growth.
With 56% combined RMS, Airtel will cross the regulatory threshold (50%) in Bihar which might have to be reduced within a year of merger.
Gopal Vittal, managing director and chief executive officer (India and South Asia), Bharti Airtel, said that the acquisition is meant to offer world-class and affordable telecom services through a robust spectrum portfolio spread across multiple bands—something which Jio has also tried to do.
“On completion, the proposed acquisition will undergo seamless integration, both on the customer as well as the network side, and further strengthen our market position in several key circles. The customers of Telenor India will now be able to enjoy India’s widest and fastest voice & data network, and a range of Airtel’s world-class products and services,” Vittal said.