Reliance Jio offer impact: Bharti Airtel buys Telenor in no-cash deal

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Bharti’s total spectrum in the 1800 MHz band in the seven circles, which currently stands at 22.7 MHz, will go up to 66.1 MHz. (Reuters)

Bharti Airtel said on Thursday it will acquire Telenor’s India operations in a no-cash deal but take on the latter’s spectrum liabilities to the government of around Rs 1,600 crore, payable in instalments till 2026. This will be Bharti’s sixth acquisition since 2012 when it acquired Qualcomm’s Broadband Wireless Access spectrum. With this, the country’s biggest telco has strengthened its spectrum holding in the 4G-enabled 1800 MHz in the seven circles of Andhra Pradesh, Bihar, Maharashtra, Gujarat, Uttar Pradesh (east), UP (west), and Assam.

Bharti’s total spectrum in the 1800 MHz band in the seven circles, which currently stands at 22.7 MHz, will go up to 66.1 MHz. With access to Telenor’s 44 million subscribers, the telco’s revenue market share will increase from 33% to 35.6%, closing the gap with the Idea-Vodafone combine whose revenue share would be 42.3%, should a deal between them fructify.

The deal also marks Norway’s Telenor’s exit from the Indian market which it entered in 2008 by acquiring a majority stake in Unitech Wireless. Subsequent to the cancellation of its licences for 22 circles in 2012 by the Supreme Court, Telenor acquired spectrum in seven circles in the auctions of 2012 and 2014 and with the government later allowing 100% foreign direct investment in the telecom sector, it became a 100% subsidiary of its Norwegian parent.

Telenor had acquired spectrum in these circles in the auctions of 2012 and 2014 for around R4,157 crore. Based on the 2016 auction prices, the value of the spectrum is around Rs 7,000 crore but based on the residual period of the 20-year lease of spectrum, it works out to a smaller Rs 5,200 crore.

Since payment of spectrum is made on a deferred basis, Telenor needs to pay R1,600 crore to the government and this liability will be taken over by Bharti.

In addition, Bharti will also take over the tower lease agreements, network and IT infrastructure of Telenor along with taking over its 700-800 regular employees.

Telenor’s acquisition would strengthen Bharti in markets such as Gujarat, Maharashtra, UP East and UP West in which it had lower RMS compared to its national average. With 56% combined RMS, Bharti will cross the regulatory threshold (50%) in Bihar which might have to be reduced within a year of merger.

Compared to Bharti, Telenor India is a much smaller company. Its FY16 revenues stood at Rs 4,788 crore, Ebitda at Rs 345 crore, minutes of usage at 384, average realisation per user at Rs 92 and average realisation per user at Rs 0.23.

Gopal Vittal, managing director and CEO (India and South Asia), Bharti Airtel, said, “The agreement underlines our commitment to lead India’s digital revolution by offering world-class and affordable telecom services through a robust spectrum portfolio spread across multiple bands. 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 customers of Telenor India will now be able to enjoy India’s widest and fastest voice & data network, and a range of Airtel’s world-class products and services”.

Sigve Brekke, chief executive officer of Telenor Group, said, “We believe today’s agreement is in the best interest of our customers, employees and Telenor Group. Finding a long term solution to our India business has been a priority for us, and we are pleased with our agreement with Airtel. The decision to exit India has not been taken lightly. 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”.

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