Mumbai: Bharti Airtel Ltd, India’s largest phone company, will spend 3,500 crore to acquire fourth-generation (4G) spectrum from Aircel Ltd in eight telecom zones as it prepares for a high-stakes battle with Reliance Jio Infocomm Ltd.

The purchase will make Bharti Airtel a pan-India 4G operator, matching Reliance Jio, which is preparing for the commercial launch of its high-speed services later in 2016.

In a filing to stock exchanges on Friday, Bharti Airtel said the company and its subsidiary Bharti Hexacom Ltd had entered into a definitive agreement with Aircel and its units Dishnet Wireless Ltd and Aircel Cellular Ltd to acquire the rights to use 20 megahertz (MHz) 2300 band 4G TD spectrum in the eight telecom circles.

These circles are Tamil Nadu (including Chennai), Bihar, Jammu and Kashmir, West Bengal, Assam, the North-East, Andhra Pradesh, and Odisha.

The spectrum, allotted to Aircel and Dishnet by the ministry of communications and information technology, is valid up to 20 September 2030.

“The transfer of the right to use for the circles of Andhra Pradesh and Orissa is subject to the revision of spectrum caps with the upcoming auction to be conducted by the department of telecommunication," Bharti Airtel said.

An Aircel spokesperson declined to comment.

Bharti Airtel has been widening its broadband footprint in preparation for the launch of services by Reliance Jio, a unit of billionaire Mukesh Ambani’s Reliance Industries Ltd (RIL).

Last month, Bharti Airtel agreed to buy Videocon Telecommunications Ltd’s entire spectrum for 4,428 crore, the second such acquisition in India’s fragmented telecom sector after the government allowed trading of airwaves in October.

In November, Anil Ambani’s Reliance Communications Ltd said it was acquiring Sistema Shyam TeleServices Ltd, which operates communications services under the MTS brand name. The deal gave Reliance Communications access to spectrum in nine circles.

Spectrum trading liberalization has finally spurred consolidation in India’s telecom sector, where as many as 11 operators are competing, driving down prices and profits, even as the high cost of spectrum is adding pressure on already stressed balance sheets.

The country’s telecom operators have a combined debt of more than 3.5 trillion on annual revenues of more than 2 trillion.

Three strands are emerging out of the current telecom landscape, said Vimal Bhandari, chief executive officer and managing director of Indostar Capital Finance Pvt. Ltd, a financial services firm.

“Firstly, realignment of spectrum is taking place following the liberalized spectrum trading rules. Secondly, competition is hotting up ahead of Jio’s entry. And lastly, the exit of telcos that are unable to make their presence (felt)," said Bhandari.

The gap between the winners and laggards in the Indian telecom market has grown starker over the past five years, said Alok Shende, founder-director and principal analyst of Ascentius Consulting.

“Bharti Airtel’s acquisition of 2300MHz spectrum from Aircel reflects that the spectrum assets are moving from low-productivity players to the high productivity ones, where they can be most productively deployed," he said.

Technological change has accompanied the evolution of the telecom market, added Shende.

“The dominant focus for incumbent telecom players during the course of 2010 spectrum auctions was around 3G, the strategy behind bidding for 3G spectrum was an intent to protect and grow their turf. The auctions for 4G in the 2300MHz band happened in a context of pre-inception business model around TD-LTE technology," he pointed out.

TD-LTE, or time-division long-term evolution, is a 4G telecommunications technology and standard co-developed by an international coalition of companies.

“At that point, excepting for two pilots, one in China and the other in Scandinavia, there was no significant validation of this technology anywhere in the world," said Shende.

“Since then, the uncertainty around 4G, both around the market as well as technology has come down, giving (it) greater credence among telcos to build a business model around this technology," he added.

Rivals of Bharti Airtel are also stepping up their 4G play ahead of the entry of Reliance Jio.

In February, Vodafone India Ltd, India’s second largest telco, completed the first phase of its planned launches of 4G services with a commercial roll-out in Mumbai. Idea Cellular Ltd has also rolled out its 4G technology-based services in several circles.

In February, RIL’s Ambani said the energy-to-telecom conglomerate will launch its 4G mobile phone services in the second half of 2016. In December, RIL offered employees up to four Jio connections each, free of cost, to test its services ahead of the commercial launch.

The Airtel-Aircel deal was announced two days after the cabinet decided to allow telecom companies to use spectrum allocated to them without auction to offer new services to consumers at a provisional price recommended by the telecom regulator.

Telecom operators have been seeking to make more liberal use of the spectrum allocated to them prior to 2010, on terms that did not allow them to use the radio waves, for new technology offerings.

The cabinet decision will allow companies to deliver 3G or 4G mobile services as well as share and trade the spectrum with other operators.

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