Stock Hits 52-week High
Bharti Airtel’s stock surged to a 52-week high on the BSE on the news, before ending at ₹ 366.05, up 1.4%, on Thursday.
Telenor’s exit reflects the underlying trend of consolidation in the India telecom market that has been spurred by the free voice and data services offered by Mukesh Ambani-controlled Jio. Anticipating tougher times with Jio’s entry, fringe players like Videocon have exited while larger ones such as Idea Cellular and Vodafone India, and Reliance Communications, Aircel and MTS are in consolidation mode. Telenor though has had a rough ride ever since it started operations in late 2009 in partnership with real estate company Unitech under the Uninor brand. Although it won licences to offer nationwide services, all of them were cancelled in the judgement on the so-called 2G scam in 2012. The company fell out with its partner, which soon had troubles of its own, but decided to persevere in the world’s second-biggest market, taking sole ownership of the unit in 2014, after the rules were changed in 2013 to allow this. Having bought back spectrum in separate auctions in seven circles, the renamed Telenor India played the price card, offering services at almost half that of its bigger rivals to gain subscribers, even becoming ebitda (earnings before interest, tax, depreciation and amortisation) positive on the back of cost efficiencies.
But with Jio looming on the horizon, it struggled to compete as all operators slashed prices and it started losing subscribers, market share and revenue, posting ebitda losses as investments to modernise and deepen its network increased. The company didn’t participate in the October spectrum auctions, signalling that it was ready to throw in the towel.
NO IMPAIRMENT CHARGES
Telenor’s accumulated losses in India amount to 24 billion krone and it has assets in the country of just 0.3 billion krone. The sale won’t lead to parent Telenor taking any impairment charges.
“We believe today’s agreement is in the best interest of our customers, employees and Telenor Group,” Brekke said.
Industry experts said the deal is beneficial for Bharti Airtel which will inherit a top line of close to ₹ 4,800 crore along with valuable spectrum estimated to be worth ₹ 5,200 crore in the 1800 MHz 4G band.
“The total value of spectrum held by Telenor is about ₹ 7,000 crore at the 2016 auc- tion prices. Out of this, the net present value of the airwaves after deducting the amortised bandwidth is about ₹ 5,200 crore,” a person with direct knowledge of the deal told ET, adding that Airtel was acquiring the spectrum for liabilities worth just ₹ 1,650 crore.
Bharti Airtel, which bought nearly 174 MHz of airwaves across the 4G bands of 1800 MHz and 2300 MHz in the last auctions, hadn’t bought 1800 MHz airwaves in UP (West), UP (East), Bihar, Andhra Pradesh and Gujarat, five circles that are among the most lucrative in terms of subscriber numbers and revenue share.
In a note, brokerage firm BNP Paribas said Bharti Airtel will acquire Telenor India and assume its spectrum liability of close to ₹ 1,650 crore but “not its debt”. Airtel reported a consolidated net debt of $14.34 billion (`95,800 crore) as of December end.
After the deal, Bharti’s revenue market share will increase by 2.6 percentage points at an all-India level, taking it to about 35.6%, narrowing the gap with a combined Vodafone-Idea Cellular entity that may emerge following negotiations.
It’s not clear whether contract staff will keep their jobs.
“Airtel may absorb all of about 700-800 employees on Telenor’s rolls. However, the fate of the rest of some 4,100 employees (mostly contract workers) is in doubt,” said the person cited above. Another person said that the worst hit will be those in functions such as sales and marketing, which will be duplicated in the six circles.