Telecom Consolidation: Tata Tele Merges With Airtel

by CXOtoday News Desk    Oct 13, 2017


The telecom sector is witnessing a consolidation wave: the latest to join the bandwagon is telecom major Bharti Airtel that announced its acquisition of the consumer mobile business of Tata Sons Ltd on debt-free cash-free basis. Earlier this year, Vodafone India and Idea Cellular Ltd–the second and third ranked cellular operators– announced their plans to merge operations to create an entity that was expected to overtake Bharti Airtel in the number of subscribers.

Bharti Airtel’s buyout of Tata Teleservices wireless business would prove a win-win for both companies, which would form a formidable competitor to Idea-Vodafone combine, while it would auger well for the industry that is quickening the pace of consolidation to arrive at three private and two state run players, said analysts and industry insiders. 

The merged entity is estimated to have almost 400 million customers, while at the end of July Bharti Airtel had over 280 million mobile subscribers. The deal includes transfer of all the customers and assets of Tata CMB to Bharti Airtel. Tata Tele has around 45 million subscribers with about 4 per cent share of the Indian mobile telephony market. Under the terms of the deal, Tata’s Consumer Mobile Businesses (Tata CMB) of Tata Teleservices Ltd and listed entity Tata Teleservices Maharashtra Ltd will merge into Bharti Airtel, which will absorb Tata mobile service operations across the country in 19 circles.

The move comes shortly after Tata Teleservices decided to shut down its loss-making telecom operations. Tata is also in initial stages of exploring combination of its Enterprise Business with Tata Communications and its Retail Fixed Line and Broadband business with Tata Sky. However, Tata will retain its stake in mobile tower company Viom and take care of associated liabilities.

“The employees of Tata will be demerged on the lines of the two businesses i.e. CMB and EFL (Enterprise and Fixed Line and Broadband), and post an optimal manpower planning will be moved accordingly,” according to the statement. “We believe today’s agreement is the best and most optimal solution for the Tata Group and its stakeholders. Finding the right home for our longstanding customers and our employees has been the priority for us. We have evaluated multiple options and are pleased to have this agreement with Bharti,” N Chandrasekaran, Chairman, Tata Sons, said in a statement.

Goldman Sachs (India) Securities Private Limited, the financial advisor to Tata mentioned that its telecom arm has been on the block for some time with reports surfacing about possible collaboration with Reliance Jio apart from Bharti Airtel. Bharti has been on an acquisition spree this year trying to strengthen its position itself as the market leader, as its faces cut-throat competition from Reliance Jio and the proposed merged entity of Idea Celluar and Vodafone India.

In April, Bharti Airtel Ltd agreed to buy Tikona Digital Networks Pvt. Ltd’s 4G business, including its broadband wireless access spectrum and 350 cellular sites in five telecom circles. Prior to this, it took over the Indian operations of Norway’s Telenor ASA to strengthen its presence in the 1800 MHz band. The transaction gave it access to 44 million customers (increasing its user base to 307 million), 43.4 MHz of spectrum in the 1800MHz band and 20,000 base stations, according to reports.

“This is clearly a win-win, no debt and cash passing from Airtel, it gets spectrum, 40 million subscribers in key circles. It helps Airtel to lock down spectrum prices, at historical value, as it doesn’t have to go into the market to take spectrum, where you don’t know what the pricing will be,” Rajan Mathews, director general of Cellular Operators Association of India (COAI) told ET. [Read the full story here]

“It’s a good move for the industry and for Tata’s. This will accelerate the consolidation… about Rs 1,500 crore will be retained, so about Rs 35,000 crore debt will now go off the top of the industry, which again is helpful,” he told the news site, adding that consolidation would reduce the demand of spectrum in the next auction. 

Mahesh Uppal, director, ComFirst, a consultancy firm, told DNA that while Airtel has got a good bargain. “It will strengthen Airtel’s position in the market, but to what extent Only time will tell. There is still pressure and a risk to revenues because of Reliance Jio’s aggressive tactics in the market,” he said.

“We are in a consolidation phase and will probably be left with 3 private players plus one PSU in the telecom industry,” Uppal said. With a subscriber base of 1.2 billion, Indian mobile market, especially consumers, has seen a complete shift in usage of a mobile phone as the entry of Reliance Jio brought in free voice calls and way too cheap data tariffs. For telecom players, it meant a price war with declining margins and a hit on profits in an already debt-ridden industry. [Read the full story here]

Experts said consolidation is the need of the hour. Telecom industry has been witnessing intense competition since Reliance Jio came into the picture last year and consolidation was inevitable.

Amidst intense competition in telecom industry, four players seen left standing. Bharti Airtel, Vodafone-Idea Cellular and Reliance Jio could combined account for over 90 percent of industry’s revenues. According to a CLSA report, the accelerating consolidation in the telecom industry will benefit top operators,” the report said.

The ongoing wave of consolidation presents the top operations with an opportunity to outpace the sector growth and improve share and profitability, the report added.