Bharti joins battle with Telenor buy

Airtel will take over Telenor India’s spectrum, licenses and operations, including its employees and a customer base of 44 million

February 23, 2017 10:56 pm | Updated February 24, 2017 11:20 am IST - New Delhi

Less than a month after Vodafone confirmed it was in talks with Idea for a possible merger in India that could create the country’s largest mobile operator, Bharti Airtel on Thursday said it would acquire the local unit of Norway’s Telenor.

The deal will help India’s largest telecom services provider to widen its lead over Mukesh Ambani-led Reliance Jio, which has already notched up 100 million users. Were Vodafone and Idea to successfully conclude a merger, the combined entity would have almost 400 million users.

“Bharti Airtel has entered into a definitive agreement with Telenor South Asia Investments Pte. Ltd. to acquire Telenor India,” Bharti said in a statement. “It will also enable Airtel to further bolster its strong spectrum footprint in these seven circles, with the addition of 43.4 MHz spectrum in the 1800 MHz band,” it said.

Though the companies didn’t disclose the deal size, a Deutsche Bank Market Research report pegged the value of the transaction at about $300 million, or more than ₹2,000 crore. Bharti Airtel shares gained 1.4% on the BSE to close at ₹366.05 on Thursday.

Sixth acquisition

This is the six domestic acquisition by Bharti in the last five years. It had acquired Qualcomm AP’s India business in May 2012, Loop Mobile in June 2014 and Augere Wireless Broadband India a year later. Last year it had acquired Videocon Telecommunications and Aircel Dishnet Wireless.

As part of the agreement, Bharti will acquire all of Telenor India’s assets and operations in seven circles - Andhra Pradesh, Bihar, Maharashtra, Gujarat, U.P. (East), U.P. (West) and Assam. “These circles represent a high population concentration and therefore offer a high potential for growth,” the company said.

“As the new owner, Airtel will take over Telenor India’s spectrum, licenses and operations, including its employees and customer base of 44 million (4.4 crore),” Telenor said in a statement.

Bharti has more than 269 million (26.9 crore) subscribers and a revenue market share of more than 33% in the telecom market. According to Fitch Ratings, Bharti’s revenue market share will rise by 2 percentage points to 35%, post the acquisition.

“The decision to exit India has not been taken lightly,” Sigve Brekke, Chief Executive Officer of Telenor Group said. “After a thorough consideration, it is our view that the significant investments needed to secure Telenor India’s future business on a standalone basis would not have given an acceptable level of return.”

The transaction will not trigger any impairment, the statement said, adding that the exposure to claims related to the period Telenor owned the business, will remain with Telenor.

The deal is expected to close within 12 months, subject to requisite regulatory approvals from the Department of Telecommunications and the Competition Commission of India.

Gopal Vittal, Managing Director and CEO (India and South Asia), Bharti Airtel, said: “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 considerably in several key circles.”

‘Consolidate or perish’

According to Fitch Ratings the agreement by Bharti Airtel to buy Telenor’s Indian telecom operations “is the latest sign that the entry of aggressive new operator Reliance Jio is spurring incumbents to consolidate to better meet the intense competition and weaker telcos to exit altogether.”

It added that Bharti’s credit profile will remain unaffected by the planned acquisition as the benefits from additional spectrum assets will offset the spectrum liabilities taken over.

Jio’s massive investment of $20-25 billion and unprecedented offering of free voice and data for six months to new subscribers have accelerated industry consolidation, according to Fitch.

“The on-going consolidation is likely to leave four larger operators – Bharti, Jio, the combination of Vodafone India and Idea Cellular, and the combined Reliance Communications and Aircel Limited,” Fitch said.

In Fitch’s view, the 43MHz of 1800MHz spectrum Bharti will acquire as part of the transaction is the primary benefit to the company.

“Telenor’s Indian operations will also come with 45 million subscribers (compared with Bharti’s Indian subscriber base of 266 million), who generate revenue of $600-700 million and EBITDA of $50-60 million (compared with $14.5 billion and $5-5.3 billion, respectively at Bharti),” Fitch said, adding this won’t enhance the acquirer’s debt levels.

“During 2012 and 2014 spectrum auctions, Telenor acquired spectrum worth ₹48 billion,” Deutsche Bank Market Research said.

“Adjusting for the upfront payment, the license-fee set-off and the annual payments made to date, we estimate Telenor’s outstanding spectrum liability would be around ₹16 billion ($230m). This would transfer to Bharti in the event of the acquisition.”

Telenor’s other assets were likely to fetch minimal value, Deutsche Bank Market Research added.

Price war

The price war triggered by the arrival of Reliance Jio has hurt revenues and profits margins of telecom players, including Bharti Airtel, Vodafone and Idea.

Bharti Airtel last month reported a 54% drop in consolidated net profit for the December quarter.

Idea reported its first ever quarterly loss for the October-December period and Vodafone last year wrote down the value of its Indian business by €5 billion.

Last year, Reliance Communications, which had acquired Sistema Shyam Teleservices and is controlled by Mukesh Ambani’s brother Anil, said it would merge with Aircel Ltd.

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