Bharti Airtel Readies for Battle as Mukesh Ambani's RJio Looms Large

Pays Rs 4,428 cr for Videocon spectrum in 6 circles

The country’s largest telephone service provider, Bharti Airtel, on Thursday announced it was acquiring rights to use Videocon Telecom’s spectrum in the 1,800 MHz band in six circles for Rs 4,428 crore.

The price is at a 20 per cent premium over that suggested by the Telecom Regulatory Authority of India (Trai) for the same frequency in auctions slated later this year.

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With this deal, Videocon has got twice the amount for which it bought the spectrum. Following this deal, Bharti will be able to offer fourth generation (4G) or LTE services in 19 circles, out of the country’s 22 telecom circles, from the current 15. This deal will enable Bharti to defend its marketshare once Reliance Jio launches its 4G services.

KEY TAKEAWAYS

Airtel acquires Videocon Telecom spectrum in 6 circles for Rs 4,428 cr, spectrum validity of 1,800 MHz till 2032   Videocon had paid Rs 1,330 cr in November 2012 for this   Bharti’s price is 20% over what it would have paid according to the reserve price suggested by Trai at Rs 640 cr, experts say   According to Fitch ratings, Bharti’s acquisition price is about 65% higher than the regulatory auction reserve price — adjusted for the residual life of 16 years   Bharti will now be able to offer 4G services in 19 of 22 circles, compared to 22 with Reliance Jio   Vodafone and Idea have 4G spectrum in 5 and 12 circles, respectively   Last year, Idea agreed to buy Videocon spectrum in Gujarat and UP (west) at Rs 3,310 cr but the deal was called off on Wednesday

The six circles are Bihar, Haryana, Madhya Pradesh, Uttar Pradesh (East), Uttar Pradesh (West) and Gujarat.  In January, Trai had suggested a base price of Rs 2,873 crore per MHz spectrum in the 1,800 MHz band countrywide. However, the price per MHz would have been Rs 640 crore at Trai’s reserve price for the six circles. At this price, including licence fees and other charges, Bharti would have paid Rs 3,681 crore.

Videocon's spectrum is valid till December 18, 2032, and will increase Bharti's ability to offer 4G services in 19 of the country's 22 telecom circles.  

Reliance Jio has 4G spectrum in 22 circles, Vodafone in five and Idea Cellular in 12. Vodafone has launched 4G services on the 1,800 MHz band.

"Bharti will have better leverage on how to use spectrum across 2G, 3G and 4G services. This is critical when traffic is changing from voice to data," said Amresh Nandan, research director (communications services) at Gartner. "Additionally, although spectrum auctions are coming, buying from Videocon gives Bharti better certainty in terms of investments and their business plan. Spectrum in the 1800 MHz can be used for 4G or they can utilise it for 2G; depending on what they are targeting in these circles," he said

Bharti would fund the deal from the sale of operations in Burkina Faso and Sierra Leone to France's Orange, Fitch said. "Bharti's deal comes amid rapid growth in data services, as usage is doubling annually while data average revenue per user (ARPU) per month has jumped to over Rs 200, higher than voice's Rs 137," it added.

The government had allowed trading and sharing of spectrum last September.

After this deal, the Bharti's spectrum holdings will reach 603 MHz, against Reliance Jio's 595.55 MHz, according to Goldman Sachs. Bharti has 18 per cent of the total air waves available in the country.

Thursday's announcement came a day after Idea called off its agreement with Videocon. Late last year, Idea agreed to pay Rs 3,310 crore to Videocon for the right to use spectrum in the 1,800 MHz band in Gujarat and Uttar Pradesh (West). The price Idea offered was three times the Rs 1,330 crore Videocon paid for the spectrum in November 2012.

Bharti's shares were up 0.56 per cent to Rs 341.55 on Thursday on the Bombay Stock Exchange. Videocon Industries closed at Rs 110.85, up 1.33 per cent.

 

Reference - http://www.business-standard.com/article/companies/bharti-airtel-rises-to-rjio-challenge-116031700276_1.html