Airtel: the buyer of last resort of bleeding telecom assets

Bharti Airtel has become the acquirer-in-chief in the telecom sector bailing out as many as nine struggling operators until now. The latest deal in which Tatas chose Bharti Airtel to handover their loss-making mobile business rather than shutting it down is only one of the several buyouts the country’s largest player has done in the last two years.

Before that, between 1999 and 2004, there was a round of consolidation that happened when Reliance Infocomm was launched and Airtel had snapped up four players back then.

Ditto was the case with Norwegian mobile operator Telenor when it decided to wind up its India operations. Airtel, India’s largest telecom operator by subscriber as well as revenues, did not pay any cash for these acquisitions.

As things stand, Airtel seems to have become the buyer of last resort for bleeding telecom assets in the country. In the last two years alone, Airtel has also acquired Videcon Telecom’s operations in six circles and Tikona Digital’s operations in five circles.

“Airtel has a good track record of acquiring and integrating network operations of other players in the last almost two decades. That makes it a preferred choice for selling assets even if no upfront cash outgo is required,” said Jayanth Kolla, partner at tech research firm Convergence Catalyst.

One of Airtel’s earliest acquisitions was JT Mobiles, with licences in Karnataka and Andhra Pradesh circles, in December 1999. Since then the company has taken an active merger and acquisitions route to become a pan-India player. “With Airtel, a seller can be assured of business continuity for customers, and better utilisation of network assets as shown by the company’s past record,” he added. And that is a major reason why loss-making operators prefer to partner Airtel over others. At the time of announcing the Uninor-Airtel deal, Sigve Brekke, CEO of the Telenor Group, had said: “Finding a long-term solution to our India business has been a priority for us, and we are pleased with our agreement with Airtel.” Since continuity of business is prime in telecommunications, with millions of subscribers, players prefer to pass on the baton to someone who will not shut it down in future, too. And Airtel fits that bill.

BK Syngal, telecom consultant and former CMD of VSNL (now Tata Communications), said deep pockets and profitability of operations (as is the case with Airtel) are not the only criterion for buying assets. “The fact is that Airtel is also picking up a risk. Any buyer needs to have a risk-taking ability which Airtel has,” he says.

So, while Airtel may not have paid out anything right now, it will have to pay a fee to the government if it decides to keep the 107.25 MHz administered (non-liberalised) spectrum owned by Tata Teleservices (TTSL). Besides, it will also take over some parts of the deferred spectrum liabilities of TTSL. “And there remains the risk of operating deals like those on towers or networks. I don’t see which other operator can take over these risks,” Syngal added.

Moreover, the Indian market is headed towards consolidation, which will leave only three players – Airtel, Vodafone-Idea combine and Reliance Jio.

While Vodafone-Idea are busy working on the approval of their merger, Tatas had the option of choosing between Airtel and RJio.

“Reliance Jio had also offered a construct. For us, it was important to get certainty and Airtel offered that. Airtel will also help us minimise liabilities,” said Tata Sons CFO Saurabh Agrawal

Now each new company or circle operations that Airtel acquires is only taking the Indian telecom market closer towards consolidation. In the long-run, it may ease the competitive price scenario and make the sector more stable.