Stock Hits 52-week High

The Economic Times - - Econ­omy: Macro, Mi­cro & More -

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.

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