Bharti Airtel does well to go on spectrum acquisition spree
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Just when you think Bharti Airtel Ltd already has all the mobile spectrum it needs, the company goes ahead and buys some more. Last Friday, it announced it will pay Rs.3,500 crore to buy spectrum in the 2300MHz band from Aircel Ltd in eight telecom circles. This is less than a month after it agreed to pay Videocon Telecommunications Ltd Rs.4,430 crore for spectrum in the 1800MHz band in six circles. The spectrum in both these bands is suited for fourth-generation (4G) telecom services.
Growth for telecom companies is already being driven largely by the data segment; in Bharti’s case, voice revenue has declined on a year-on-year basis in the past three quarters. In this backdrop, it makes sense to have adequate spectrum to support efficient data services.
Analysts at JM Financial Institutional Securities Ltd point out in a note to clients, “With this deal, Bharti will have 490MHz of broadband (3G+4G) spectrum on aggregate basis across the 22 circles, versus 486MHz of ‘all 4G’ spectrum owned by Jio. Bharti now has 4G-spectrum (i.e. 1800MHz or 2300MHz) in all 22 circles, and both 1800/2300 frequencies in 13 circles.”
Besides the wide coverage, spectrum trading has opened a new avenue for purchasing the hitherto scarce asset. In spectrum auctions, the only avenue available earlier, companies often ended up bidding up prices to extremely high levels. After adjusting Aircel’s spectrum valuation for its remaining validity of roughly 14.5 years, Bharti Airtel has ended up paying around 10% higher than the reserve price set by the Telecom Regulatory Authority of India.
If Bharti had let the opportunity pass and waited for the auctions, it may have had to shell out a substantially higher amount. JM Financial’s analysts say, “We now expect Bharti to focus primarily on filling up its 2100 (3G) and 1800 (4G) gaps in the next auction; reduced competition for 2300 augurs well for other 4G-contenders like Idea/Vodafone.” Of course, the deal is a win-win for Aircel as well; this helps it reduce its debt by about one-fifth, according to news reports.
While the deal augurs well for Bharti in the long run, investors must note that the benefits may not be visible anytime soon. As it is, the pace of data subscriber additions has slowed, calling to question the large investments on this segment. Reliance Jio Infocomm Ltd’s launch later this year could put a spoke in the wheel as well.
Even so, these are early days of consolidation and, eventually, subscribers may veer towards telecom operators who provide the best service. If Bharti is able to put all of its spectrum to good use and provide quality voice and data connectivity, its investments can result in substantial returns.