Bharti Airtel’s buyout of Tata TeleservicesBSE 9.95 % wireless business would prove a win-win for both companies, which would form a formidable competitor to Idea-Vodafone combine, while it would auger well for the industry that is quickening the pace of consolidation to arrive at three private and two state run players, said analysts and industry insiders.
For the market leader, the benefits are multiple — it gets spectrum at practically throwaway prices, without taking on liability of debt or giving away cash – while the industry will have a lower collective debt and fewer players to bid for future auctions, which may even help in firming up spectrum prices.
“This is clearly a win-win, no debt and cash passing from Airtel, it gets spectrum, 40 million subscribers in key circles. It helps Airtel to lock down spectrum prices, at historical value, as it doesn’t have to go into the market to take spectrum, where you don’t know what the pricing will be,” said Rajan Mathews, director general of Cellular Operators Association of India (COAI).
“It’s a good move for the industry and for Tata’s. This will accelerate the consolidation… about Rs 1,500 crore will be retained, so about Rs 35,000 crore debt will now go off the top of the industry, which again is helpful,” he said, adding that consolidation would reduce the demand of spectrum in the next auction.
The comments came after the Sunil Mittal-led telco said it was merging the consumer mobile businesses of Tata Teleservices (TTSL) across 19 circles — 17 under TTSL and 2 under Tata Tele Maharashtra (TTML) — with itself, on a debt-free and cash-free basis. The market leader would get Tata’s entire spectrum holding, of which 40% is liberalised, and will take on a small portion of the outstanding spectrum liability to be paid to the government.
“This is a positive for N Chandrasekaran of Tata Sons who got rid of the white elephant and a company that had no value,” said Sanjiv Bhasin, executive VP, markets and corporate affairs, at brokerage IIFL. As per experts at Bank of America Merrill Lynch, the total liability comes to $1.5 billion, while Airtel may take on $230-450 million. TTML stock rose 9.95% to `4.42 on the BSE while Bharti Airtel’s scrip fell 0.83% to `400.05 on Thursday.
Bharti may choose to surrender part of the administered spectrum to the government, analysts said in a Bank of America Merrill Lynch note, adding that the deal would generate opex and capex synergies for Bharti, and “places it for potentially retaining the number one share even post Vodafone-Idea merger.”
As per an investor presentation of Airtel, the company had a 36.5% share of market revenue (RMS) as of September, while Tata Tele had around 5%. The Vodafone-Idea combine’s RMS comes to 43% while Airtel and Tata make up 41.5% together.
“While the combined entity may breach RMS caps in certain circles (Delhi, Karnataka, Tamil Nadu, Rajasthan, Himachal Pradesh, Bihar and Odisha) we would expect it to take a few quarters to close the proposed deal, and think it could cede share to Jio in the interim,” UBS said in its note to clients.
However, some in the industry said that the deal could have been sweeter if the enterprise segment was added to the mix. “The enterprise business of Tata going to Airtel would have better cause that would have strengthened Airtel’s enterprise business. And same for DTH business of Tata’s which would have distanced the then combined entity with all other DTH service providers,” said Sanjay Kapoor, former chief executive of Bharti AirtelBSE 6.65 % for India.
Kapoor said the deal was not “earth shattering” as the Tata’s had a depleting base of consumers because they did not invest in data and 4G. But, “in light of Idea-Voda merger, this will help Airtel to bridge gap between merged entities and Airtel standalone,” he added.
Source: Economic Times