Telenor Buy to Arm Airtel Amid Consolidation Wave
Kolkata: Bharti Airtel’s cashless buyout of Telenor India will help underpin the telecom company’s defence of local markets in an industry that is consolidating after the impact Reliance Jio Infocomm’s free voice and data services have had on the country’s biggest carriers.
Industry experts and sector analysts said the acquisition would give Bharti Airtel access to additional, liberalised 4G airwaves in the 1800 Mhz band in the large population centers of Gujarat, Uttar Pradesh East and West, regions where the company’s present capacity is lower than average. In particular, the buyout would bolster Bharti Airtel’s defences against a likely Vodafone-Idea Cellular combine in these markets.
“Telenor India brings valuable, liberalised 4G spectrum in the 1800 Mhz band in UP-East, UP-West and Gujarat,” brokerage UBS said, adding that access to such airwaves “is particularly important, given the recent announcement of a potential Vodafone-Idea merger, which would have made Bharti Airtel’s spectrum position relatively weaker.”
Bharti said this week it would take over Telenor India’s outstanding spectrum payments worth around ₹ 1,650 crore and other operational contracts, besides employees and 44 million customers.
Telenor’s India unit has operations in six circles — Andhra Pradesh, Bihar & Jharkhand, Gujarat, Maharashtra, Uttar Pradesh (East) and UP (West). It also has spectrum in Assam where it hasn't started operations. These seven circles contribute about 35% to Bharti’s total revenue, and the addition of Telenor India customers would take India's biggest phone company to a subscriber base exceeding 300 million.
Brokerage Motilal Oswal backed UBS, saying a 4G network rollout on 1800 Mhz “remains the most efficient due to its well-developed ecosystem.” It further said capacity addition on this band should lead to “cost advantage coming from network design and equipment deployment.” Bank of America-Merrill Lynch said the deal would enable the market leader to harness the carrier aggregation technology to boost 4G capacity in UP-East, UP-West, Bihar and Andhra Pradesh as Airtel’s spectrum is contiguous with Telenor India’s in these key markets.
According to analysts, Bharti Airtel could breach the 50% revenue market share (RMS) cap in Bihar under the present M&A rules. Deutsche Bank estimates Airtel’s RMS in “Bihar is likely to be in the 53-54% range” on conclusion of the Telenor India deal.
Brokerage Phillip Capital, in turn, expects the Telenor India acquisition to add ₹ 1,300 crore to Bharti Airtel’s Ebitda (earnings before interest, taxes, depreciation, and amortization). “The Ebitda addition will translate to 4% Ebitda growth in FY18, clearly indicating that more growth options are available for Bharti,” analysts at Phillip Capital said in a note.
The global brokerage also expects the deal to ring in “significant opex synergies” that will lead to a reduction in network and SG&A (selling, general and administrative) costs.