Caller alert: Bharti Airtel’s Loop buy to trigger consolidation
India’s telecom sector has entered a shakeout mode as spectrum costs loom amid tough competition and a pile-up of debt, forcing industry players to find ways to boost pricing power and market share in a cut-throat market.business Updated: Feb 19, 2014 01:52 IST
India’s telecom sector has entered a shakeout mode as spectrum costs loom amid tough competition and a pile-up of debt, forcing industry players to find ways to boost pricing power and market share in a cut-throat market.
Bharti Airtel has made the first move by acquiring Loop Telecom in a deal valued at about Rs. 700 crore, and its ripple effects are expected to be seen in the coming months, as other behemoths such as Vodafone, new entrant Reliance Jio and Sistema Telecom eye struggling operators such as Aircel, Tata Teleservices (TTSL), Videocon and HFCL, which industry watchers expect to be gobbled up by their bigger rivals.
According to a Fitch Ratings report on Tuesday, the recent auction will hasten industry consolidation, strengthen tariffs and reduce regulatory risks. A group of ministers has approved 100% FDI in telecoms and has given guidelines for mergers and acquisitions (M&A), setting the stage for consolidation.
“Consolidation will help increase operating profits and cash flows, that will return pricing power to major players,” said Ashish Sharma, director at management consultant Booz & Co.
The spectrum auction has clearly spelt out the telcos’ survivor list. Industry expect state-controlled BSNL and MTNL to remain in the market after the anticipated shakeout. Among private players, Vodafone, Reliance Jio, RCom, Bharti Airtel, Sistema, Uninor and Idea Cellular are expected to stay.
BK Syngal, former CMD of the erstwhile VSNL, now a Tata company, sees consolidation happening in two phases. “The first shakeout will bring down total operators (in a circle) from 12 to six or seven, and in the second phase to four or five,” he said.
Operators such as TTSL, HFCL and Videocon, which are keen to exit as they don’t have sufficient spectrum or financial muscle, are learned to be in discussions with prospective suitors.
With FDI allowed without limits, some companies may bring in foreign partners as part of the M&A wave, said a banker advising Idea Cellular.
Industry sources say some telecom firms from the US, Europe and Africa are looking at the books of Idea and Aircel after the 2G spectrum auction. An Idea spokesperson said the company does not comment on market speculation.
“It does not surprise us, after the government allowed 100% FDI in telecom services,” said a senior Telecom Commission member.
In the past, AT&T, Orange (which was at one time close to acquiring TTSL), Telefonica of Spain, and the MTN Group have shown interest in entering India. “India is too huge a market to ignore for any foreign telco,” said Lloyd Mathias, former president of TTSL.
First Published: Feb 19, 2014 01:05 IST