MUMBAI: Vodafone has emerged as the frontrunner for buying out Telenor’s operations in India, said two people with knowledge of the matter, as the country’s No. 2 telecom company prepares for the coming battle over data customers with rivals Bharti AirtelBSE -1.94 % and Reliance Jio Infocomm.
It’s not clear whether the deal will be restricted to the spectrum or include the company as well — the two people cited above differed on this. But they agreed that the airwaves — in the 1800 MHz band that can be used to carry 4G but currently being used to offer 2G by Telenor India — will be valued at roughly $1 billion (Rs 6,800 crore).
Acquiring the Indian unit of the Norwegian company would entail a slightly greater expenditure — the frequencies are really what an acquirer is looking for, given that Telenor’s subscription levels are still relatively low after eight years of being in India.
One of the persons said Vodafone may take on debt and try to retain customers in service areas where it would provide a major boost against rivals.
Telenor, which has spectrum in seven areas and operations in six, had about Rs 500-crore debt denominated in the Indian currency, apart from international bonds and dollar debt at the end of 2015. Analysts estimate that to be around Rs 4,000 crore.
A Vodafone spokesman declined to comment on specific queries but said the company was open to options such as spectrum sharing, trading, and mergers and acquisitions.
“We are India’s largest FDI (foreign direct investment) investor, one of the largest telecom service providers in the country and committed to contribute to the government vision of Digital India,” the spokesperson said. “To grow our business, we continually evaluate opportunities, such as spectrum sharing, trading, M&A, and spectrum purchase in an auction.”Telenor declined to comment.
Vodafone, with 4G airwaves in five circles, lags Idea’s holdings in 10 circles and Airtel and Jio’s pan-India footprint.
The Indian unit of UK’s Vodafone Group, therefore, needs to shore up its 4G airwaves, having already lost the first-mover advantage in many circles to market leader Airtel and third-ranked Idea. Jio, owned by Mukesh Ambani-controlled Reliance Industries Ltd, is expected to launch high-speed broadband services this year.
One option for Vodafone India would have been to buy 4G spectrum at the upcoming auctions, expected late August or early September but that may be too late.
“The wait till (spectrum) auction will further delay deployment for Vodafone. The markets covered by Telenor are populous markets with a significant ground for Vodafone to gain,” said the first person.
Buying Telenor or just its 4G spectrum makes sense now as spectrum harmonisation has made the telco’s airwaves even more attractive.
The Department of Telecommunications (DoT) has rejigged allocated frequencies so they are contiguous for operators as part of spectrum harmonisation.
Telenor is testing a technology that allows LTE mobile broadband on a narrow band of spectrum in Varanasi and plans to expand this to the six operational circles by the year-end.
But analysts are sceptical about the technology, while pointing out that the company is anyway too late into the data market. Traditionally, LTE is deployed over a minimum 5 MHz of contiguous spectrum.
Since all of Telenor’s spectrum has been bought in auctions, the airwaves have a long validity period and can be used for any technology. If it had been allotted, an acquirer would have to pay separately for the spectrum. Since there is 5 MHz or more in each of the seven circles — Andhra Pradesh, Bihar, Gujarat, Maharashtra, Uttar Pradesh (East), Uttar Pradesh (West) and Assam — Vodafone can use it all for 4G services. Bharti Airtel recently reinforced its presence in some of these circles through its acquisition of Videocon’s airwaves, also in the 1800 MHz band.
In some circles, the spectrum will be critical. For example, Vodafone has 4G airwaves in Mumbai but not in Maharashtra. In UP (East) and Gujarat, Vodafone is the leader in revenue market share. On top of that, Telenor’s bid to be the cheapest provider has soured the market in those circles for Vodafone.
In Bihar, Maharashtra, UP (West) and Assam, Vodafone trails Airtel. While it is unlikely that all of Telenor’s customer base will migrate to Vodafone, an acquisition will at least guarantee that it will get a majority of the users, said an analyst. He further added that in these markets, call rates are among the lowest in the country but they are likely to rise after consolidation. That would benefit all three major market players – Bharti Airtel, Vodafone India and Idea Cellular.
An acquisition of Telenor would yield an added benefit. Telenor has rented telecom towers from Viom, now acquired by American Tower Corp, at a lower rental than Vodafone has from Indus Towers. Telenor uses about 11,500 sites on that network, most of which will prove useful in Vodafone’s 4G deployment, said a person familiar with network planning.
Telenor entered India in 2008 by buying into all-India spectrum and permit holder Unitech for Rs 6,120 crore. The company’s licences, however, were revoked by the Supreme Court among the 122 scrapped as part of the 2G scam ruling. But Telenor, then called Uninor, acquired bandwidth in six circles, and subsequently, bought out its Indian partner when the rules allowed for Rs 780 crore.
The company bid for frequencies in two spectrum auctions. The first was in November 2012, when it paid a little over Rs 4,000 crore, including deferred payments, which are accounted as debt and may be taken over by Vodafone.
The second was in 2014 for some incremental spectrum and the addition of Assam, suggesting Telenor was committed to the Indian market at the time. It made an operating profit in less time than targeted but that got wiped out in price wars as it sought to establish itself. It’s ranked fifth or sixth in most circles, which analysts say isn’t sustainable as only the top two or at best three can make money.
Source: Economic Times