Tata Tele deal: How Air­tel is get­ting a bil­lion-dol­lar busi­ness for free

Mint ST - - MARK TO MARKET - Mo­bis Phili­pose mo­bis.p@livemint.com Gross rev­enue for the June 2017 quar­ter (in Rs crore) Bharti+te­lenor+tata Voda­fone+idea BSNL/MTNL Air­cel Rcom+sis­tema

Af­ter Te­lenor ASA de­cided to hand over its In­dia mo­bile busi­ness to Bharti Air­tel Ltd for free (bit.ly/2qotj3c), the Tata group has done the same. In the June quar­ter, rev­enues of th­ese com­pa­nies to­gether stood at Rs3,202 crore, or nearly $2 bil­lion on an an­nu­al­ized ba­sis. Sure, since Tata’s non-mo­bile busi­nesses, such as broad­band, are be­ing re­tained, the ac­tual rev­enue that could po­ten­tially ac­crue to Air­tel could be lower.

Still, even us­ing con­ser­va­tive es­ti­mates, the Tatas are trans­fer­ring at least a $1 bil­lion busi­ness to Air­tel for free. Te­lenor’s an­nu­al­ized rev­enues stood at $606 mil­lion in the June quar­ter.

In fact, the Tatas have gone a step fur­ther com­pared to Te­lenor. For the lat­ter, Air­tel agreed to take over out­stand­part With the Tata ac­qui­si­tion, Air­tel’s rev­enue mar­ket share will be much closer to that of the Voda­fone-idea com­bine. ing spec­trum pay­ments, other op­er­a­tional con­tracts such as tower leases and em­ploy­ees. But the deal with the Tatas is even sweeter; it will take over only a por­tion of out­stand­ing spec­trum pay­ments and it’s not clear whether op­er­a­tional con­tracts and em­ploy­ees are of the deal.

The sim­ple rea­son Air­tel is able to strike such deals is that it is the only buyer in the mar­ket. Voda­fone In­dia Ltd and Idea Cel­lu­lar Ltd have enough on their plate with their own merger, and the last thing they would want to en­gage with is the in­te­gra­tion of an­other telco. Re­liance Jio In­fo­comm Ltd, af­ter hav­ing spent Rs2 tril­lion al­ready in build­ing its net­work ap­pears self-suf­fi­cient. Of course, th­ese are also dis­tress sales, given the high­cash burn at th­ese com­pa­nies. For sell­ers, there­fore, one big hope is if Air­tel evinces some in­ter­est. The only other op­tion is to wind down the busi­ness, which en­tails far higher costs.

A Tata Sons ex­ec­u­tive told Mint the cost of wind­ing down the busi­ness would have been about Rs8,000 crore higher than the cur­rent ar­range­ment. Know­ing this well, Air­tel has stayed shy of rush­ing into deals, and has waited till sell­ers agree to its terms.

This puts it in an en­vi­able po­si­tion; such takeovers help grow mar­ket share as well as help plug gaps in its spec­trum port­fo­lio at a fairly low cost. In ad­di­tion, with Voda­fone and Idea busy with the merger process, and given the un­cer­tainty among their em­ploy­ees, Air­tel can grab mar­ket share from its large ri­vals as well.

As such, in a few quar­ters, Air­tel will end up as a clear mar­ket leader in terms of rev­enue mar­ket share, even though cur­rently, Voda­foneidea is ahead by a size­able mar­gin. Of course, things are not as rosy as they seem. Thanks to the cut-throat com­pe­ti­tion from Jio and the twin im­pact of GST (goods and ser­vices tax) and the cut in in­ter­con­nec­tion us­age charges (IUC), Air­tel’s wire­less busi­ness is likely to re­port pre-tax losses by the end of the year.

How­ever, when things im­prove—hope­fully with Jio’s ap­proval for higher tar­iffs— Air­tel can be ex­pected to be in a fairly strong po­si­tion as it gob­bles up small tel­cos one af­ter an­other and also gains share from other com­pa­nies.


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