The battle for survival is intensifying in the telecom industry as companies are struggling to manage losses at the cost of gaining market share. Telecom companies were already struggling to earn profits before the entry of Reliance Jio Infocomm due to huge spectrum charges coupled with tariff wars. The battle immediately got intense after the launch of services by Mukesh Ambani owned Reliance Jio Infocomm on a pan India basis.
It is inevitable that only a few companies in the telecom industry would survive in the long run. Earlier this year, Vodafone India and Idea Cellular had agreed to merge their operations to create the country’s largest telecom operator to survive in the tough competitive environment.
Now, Tata Teleservices has succumbed to the pressure of surviving in the telecom industry and will sell its consumer mobile business to India’s largest telecom operator Bharti Airtel, virtually for free, as part of the Tata group chairman’s strategy to exit businesses which have been a prolonged drag on its other businesses and have little visibility of future profits.
Bharti Airtel is buying the telecom arm of the Tata group virtually for free as it would be only required to pay a part of the unpaid spectrum charges of Tata Teleservices amounting to Rs.20 billion. The remaining amount of Rs.80 billion for spectrum charges along with other liabilities and dues would be paid by the Tata Group according to the deal. The merger is subject to requisite approvals and involves two of the Tata group companies – Tata Teleservices Ltd and Tata Teleservices (Maharashtra) Ltd (TTML).
Bharti Airtel will absorb Tata’s mobile phone operations across the country in 19 circles (17 under Tata Teleservices and two under TTML). These circles represent the bulk of India’s population and mobile customer base. Tata Teleservices had a subscriber base of 44 million and revenue market share (RMS) of 5% at the end of the June quarter. With the merger, Airtel’s overall subscriber base is now expected to increase to as much as 351 million as against the combined Vodafone-Ideaâ€™s projected 391 million customer base.
Airtel’s RMS will also rise to more than 40% from 35.6% in September, a tad short of the combined 42% RMS of Vodafone-Idea. Tata’s average revenue per user stood at Rs159/month, lower than that of Airtel and Vodafone, but higher than Idea’s. The acquisition will also bolster Airtel’s position vis-a-vis Reliance Jio, as Airtel will get access to 178.5 megahertz (MHz) spectrum (of which 71.3MHz is liberalized or free to trade) in the 850MHz, 1,800MHz and 2,100MHz bands, and help it strengthen its 4G coverage.
The stock of Bharti Airtel has reacted positively to the news as it was up by 7% after the announcement. The deal is expected to further consolidate the position of Bharti Airtel in the telecom industry as it would come closer in competition to the would be merged Vodafone Idea entity. The average revenue per user would also tend to increase in the long run for Bharti Airtel as it gets to use the assets of Tata Teleservices only by paying fraction of the spectrum charges.
Even though the deal is positive for Bharti Airtel there is no financial visibility in the near future for any of the telecom players in the industry as Reliance Jio Infocomm has entered, to be in this business for a very long time to come backed by India’s largest company, Reliance Industries.