Airtel stand out of competition
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6 April 2016
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Bharti Airtel’s Rs 4,428-crore deal with Videocon Telecom, which will give it five megahertz (MHz) of spectrum each in the six circles of Bihar, Haryana, Madhya Pradesh, Uttar Pradesh (east), Uttar Pradesh (west) and Gujarat in the 1,800-MHz band and valid till 2032, is positive. Idea Cellular had signed a deal in November 2015 with Videocon for the last two circles for Rs 3,310 crore but cancelled on Wednesday, reportedly on higher service tax component.
Bharti has not only added to its current spectrum holdings in each of these circles but also gained a competitive edge against its rivals. The spectrum circles will boost its 1,800-MHz holding, especially in UP (east) and Bihar where its holdings are one MHz and three MHz, respectively. For Idea, the additional spectrum would have come handy for 4G roll-out in the two circles where it has leadership position.
Given balance sheet strength of Bharti Airtel, which has the option of deploying part of its Africa tower sales proceeds into Indian operations or reduce debt, it was in a better position to offer this deal to Videocon.
At Rs 4,428 crore, Bharti has paid about 1.5 times the March 2015 winning bid in the 1,800-MHz band for these six circles. As compared to this, for Gujarat and UP (west), Idea would have paid nearly two times had its deal gone through. However, it is not clear whether Bharti has jumped the gun given the coming auctions across bands. Rating agency ICRA in a note on Thursday indicated given the evolving system around the new bands and steep pricing, it expects limited participation from telecommunication companies in the coming spectrum auctions.
What will benefit the larger incumbents is the trend towards consolidation both by way of merger and trading of spectrum. If successful, these have the potential to improve the quality of spectrum, and, hence, bring network efficiencies, says ICRA.
The challenge for telecom companies, however, will be to get users to consume data and upgrade to 4G devices. With data realisations falling, the upgrade and increase in usage will be key. Analysts at HSBC, in a report this week, said they were positive on Bharti, given its 3G and 4G spectrum holdings that make it better-placed than other incumbents, as it has more flexibility in transitioning data to 900-MHz spectrum. With six circles having a 900-MHz data layer, Bharti, according to them, is well-placed to combat the 800-MHz spectrum advantage of 4G entrants such as Reliance Jio.
Fitch Ratings and HSBC say, the acquisition will give Bharti the ability to offer 4G services in 19 of the 22 circles compared with Jio (all 22 circles). Vodafone and Idea have 4G spectrum in five and 12 circles, respectively.