Airtel buys Telenor India as telecom consolidation gathers steam

The Telenor deal is a shot in the arm for Airtel, whose dominance over the telecom industry is being threatened by Reliance Jio and a likely Vodafone Idea merger


The Telenor acquisition will give Airtel access to 44 million customers 43.4 MHz of spectrum in the 1,800MHz band and 20,000 base stations. Photo: Pradeep Gaur/Mint
The Telenor acquisition will give Airtel access to 44 million customers 43.4 MHz of spectrum in the 1,800MHz band and 20,000 base stations. Photo: Pradeep Gaur/Mint

New Delhi: Bharti Airtel Ltd agreed to acquire the assets of Telenor ASA’s India business, as the country’s biggest telecom operator seeks to preserve its position in a market where new entrant Reliance Jio Infocomm Ltd’s aggressive pricing has spurred a wave of consolidation.

As part of the deal, Airtel will assume the Telenor unit’s liabilities related to licence fees and lease obligations for phone towers, a Telenor spokesman said on Thursday. The transaction, which won’t involve any cash payments to Telenor, will give Airtel access to 44 million customers (increasing its user base to 307 million), 43.4 megahertz (MHz) of spectrum in the 1,800MHz band and 20,000 base stations.

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The latest deal comes amid fierce competition and follows a move by Vodafone Group Plc.’s India unit and Idea Cellular Ltd to discuss a merger of their operations to create India’s largest phone operator last month. Billionaire Mukesh Ambani’s Jio phone service has signed up 100 million subscribers in about five months by offering free data and voice calls, undercutting established rivals and eroding industry profitability.

The Telenor transaction is expected to close in the first quarter of the year starting 1 April.

Airtel will take on residual future liabilities including around NOK2 billion (Rs1,600 crore) of spectrum and NOK5 billion (Rs4,000 crore) lease obligations, Credit Suisse said in an investor note.

“The sale price is clearly very low for a business with 44m subs (subscribers) and NOK6bn revenues,” Credit Suisse said. “Given the negative NPV (net present value) of the business at least it (Telenor) did not have to pay a big negative price to exit.”

The acquisition comes as a shot in the arm for Airtel, whose 20-year-old dominance over the industry is being threatened by Reliance Jio and the potential merger of the nation’s second largest operator Vodafone India Ltd and No. 3 Idea Cellular.

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Experts say the consolidation will leave three main operators in the Indian telecom market and can potentially improve profitability of operators in the long term.

As of December quarter, Telenor India had revenue and Ebitda of $160 million and $20 million, which is 4-5% and 1.5-2% of Airtel’s consolidated quarterly revenue and Ebitda, respectively, according to UBS Global Research. Ebitda, short for earnings before interest, tax, depreciation and amortization, is an indicator of operating profitability.

The Telenor acquisition strengthens Airtel in markets such as Gujarat, Maharashtra, Uttar Pradesh East and Uttar Pradesh West, where the company has lower revenue market share (RMS) than its national average.

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With 56% combined RMS, Airtel will, however, exceed the regulatory threshold (50%) in Bihar.

“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,” said Gopal Vittal, managing director and chief executive officer (India and South Asia), Airtel. “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 the decision to exit India was taken “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,” Brekke said.

Reuters contributed to this story.

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