Bharti Airtel buying Telenor India is indeed a Reliance Jio effect and a smart move
Industry watchers say Bharti Airtel's Telenor acquisition could be a smart move on the pricing front
New Delhi - Bharti Airtel is expected to boost its spectrum holding in at least four populous telecom circles by acquiring Norwegian telco Telenor’s Indian operations. It will also get 44 million customers and nearly 700 Telenor employees in the bargain.
The acquisition will include transfer of all of Telenor India’s assets and customers; it will also enable Bharti to add 43.4 MHz spectrum in the 1800 MHz band. Bharti has been smart about this buy, ensuring there is one less telecom operator in a very crowded market to give it a headache, especially at a time when Relaince Jio Infocomm’s arrival in an already crowded market is sending down jitters.
With this acquisition, Bharti gets to enhance its spectrum holdings, acquire customers etc but the biggest plus is this: Bharti has achieved all this at a throwaway price, by talking to Telenor apparently for less than two months!
So the acquisition is a small positive for Bharti in the operational sense. No, it does not materially change things in the telecom industry’s pecking order just yet, since Bharti continues to be the leader. It also may not change industry contour going forward, when the speculated merger of Vodafone India and Idea may create a biggie which could outstrip Bharti in market share.
“The acquisition of additional spectrum through this transaction, which made an attractive business proposition, has further enhanced our already solid spectrum portfolio. The proposed transaction will also create substantial long term value for our shareholders given the significant synergies,” Bharti's MD and CEO Gopal Vittal said in a statement.
Telenor’s acquisition will not give Bharti muscle power to edge ahead of the Vodafone-Idea combine. But as we said earlier, it is a smart purchase. Telenor ASA’s press statement said that as of fourth quarter 2016, the remaining value of tangible and intangible assets in Telenor India amounted to NOK 0.3 billion or a little less than $36 million. Some industry watchers are calling it a dream price for Bharti to have killed several birds with one stone.
Telenor entered the Indian telecom market in 2008 but by 2016, its revenues were only NOK 6 billion ($0.7 billion) while operating cash flow was NOK -0.4 billion ($ -4.78 million). The telco had made it clear in the last few months that it intended to wind down the Indian operations and exit eventually.
It was operating in Andhra Pradesh, Bihar & Jharkhand, Gujarat, Maharashtra, UP East and UP West telecom circles besides owning spectrum in Assam. Telenor’s India operations never recovered from the 2012 Supreme Court decision which compelled it surrender 22 licenses. At that time, the Norwegian telecom company had declared an investment in Indian operations to the tune of $2.7 billion.
One industry watcher said the acquisition of Telenor’s operations by Bharti is beneficial for the market leader but will not help it retain the crown if the much-talked about merger of Vodafone India and Idea does take place. Another expert said in four of the seven circles of Telenor, Bharti can reap immediate benefits by increasing the size of its 4G spectrum (3 circles it will increase from 5 to 10 MHz and in one circle from 10 to 15 MHz). In rest of the 3 circles, it will need efforts in terms of coordination with other operators and the DoT.
So in AP, Bharti can enhance its spectrum from 10 MHz (contiguous) to 15 MHz (contiguous). In Assam, Bharti just gains additional spectrum, not contiguous spectrum. In Bihar, Bharti can enhance its 4G spectrum in 1800 MHz band from 5 MHz (contiguous) to 10 MHz (contiguous); ditto in UP East but not so in UP West.
India’s telecom is second behind China in size but has been bleeding due to overcrowding and intense competition with low tariffs. So when Reliance Jio entered the market late last year with free voice and deeply discounted data plans, it naturally pushed incumbents to also slash tariffs and suffer consequent profit erosion.
Bharti Airtel reported its lowest profit in four years in the October-December quarter while Idea Cellular posted its first-ever quarterly loss for the same period.
The only way forward in this scenario is for telecom operators to merge, lessen competition while boosting balance sheets. The biggest expected consolidation would happen if talks between Vodafone and Idea were to fructify into a merged entity. Though it will have more revenue market share and subscribers than current market leader Bharti, it will still not be able to match Bharti’s margins.
Two analysts of brokerage Motilal Oswal had said in a note to clients earlier this month that revenue and financial KPIs (key performance indicators) of India’s telecom market have sharply declined, thanks to the arrival of a new operator and the wireless industry is expected to see a decline of 3-5% in the current fiscal. "This will be for the first time and the market condition will only improve once the new operator starts charging subscribers.....new operator has severely impacted the market," they said.
Perhaps with aggressive consolidation, the industry is averting precisely this decline.