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Friday, 24 February 2017

Reliance Jio effect: Bharti Airtel gets Telenor for free - 24 Feb 2017

In what will lead to yet another multinational exit in the telecom space, Bharti Airtel on Thursday announced the acquisition of Telenor India. It’s a no-cash deal, which will see Norway’s telco packing up and leaving the country, as business had become unsustainable. 

While the companies refused to speak on the size of the deal, sources in the know pegged Bharti’s cost of acquisition at Rs 1,600 crore. This money will be used for paying the outstanding amount for the spectrum that Telenor has acquired, it is learnt. Bharti Airtel will also take over Telenor’s contracts for tower lease and infrastructure.  

The spectrum payment will be made in phases for the next 10 years. Saying that telecom was a “spectrum game’’, a source added the additional spectrum of 43.4 MHz in the 1,800-MHz band, known for 4G data efficiency, coming from Telenor, was expected to be “more than sufficient for Bharti over the next four to five years”.

Bharti claimed the acquisition would bolster its footprint with the additional spectrum band, besides eliminating smaller and fringe players.  

Whether the deal would help Bharti take on Reliance Jio in the fiercely competitive environment, an analyst said, “Market forces along with customer service and network quality would determine the winner.’’ 

The acquired company’s debt of about Rs 1,500 crore will be serviced by Telenor itself, executives said.   

While Bharti would gain around 44 million new subscribers, adding to its current base of 269 million, once the deal fructifies by end of the year, Telenor would get to exit without paying any severance charges for its infrastructure contracts and tower lease deals. Bharti would replace Telenor in those agreements with the likes of IBM, Ericsson and Nokia. 

Telenor, which was among the telcos to get as many as 122 licences in 2008 under then telecom minister A Raja, has had a stormy run in India that had begun with a venture with real estate company Unitech. Subsequently, Unitech faced charges in the 2G spectrum scam and Telenor went on a solo ride. The Norwegian company, which had bet on India as the fastest growing telecom market, is exiting India to cut its losses, experts said.       

Sigve Brekke, chief executive officer (CEO) of Telenor Group, said, “Finding a long-term solution to our India business has been a priority for us, and we are pleased with our agreement with Airtel. After thorough consideration, it is our view that the significant investments needed to secure Telenor India’s future business on a standalone basis will not give an acceptable level of return.”

According to Gopal Vittal, managing director and CEO (India and South Asia), Bharti Airtel, “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 in several key circles.” The proposed transaction will also create substantial long term value for Bharti shareholders given the significant synergies, Vittal said.

Shares of Bharti Airtel opened at Rs 371.80 on the BSE and closed at Rs 363.50, after touching a 52-week high of Rs 400.65.

Advantage Airtel 

The takeover would fortify Bharti against competition like Jio and also the proposed Vodafone-Idea merger, telecom expert Mahesh Uppal said. 

Airtel As part of the agreement, Bharti will acquire Telenor India’s running operations in seven circles — Andhra Pradesh, Bihar, Maharashtra, Gujarat, UP (East), UP (West) and Assam. These circles represent a high population concentration and, therefore, offer a high potential for growth, the Sunil Mittal-led company stated. 

The acquisition will cross the 50-per cent revenue market share threshold in the Bihar circle, which would require trimming 9.2 per cent of Telenor’s revenue, Edelweiss Securities said. 

Some analysts said higher customer base through acquisition is not expected to automatically translate into increase in revenues for Bharti as most of the Telenor users are low income customers.

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