Ending a 20-year-old saga of poor decisions and mounting losses, Tata Teleservices on Thursday said it will merge its consumer mobile businesses with Bharti Airtel in a cashless deal.
The deal consolidates Airtel’s standing as the country’s No. 1 operator in terms of revenue market share even if the Vodafone-Idea merger were to go through.
It also gives Airtel access to valuable spectrum to thwart the latest challenge in 4G services from Reliance Jio.
Under the deal, Airtel will get access to 178 MHz of additional spectrum and 40 million subscribers. Airtel is not paying anything to Tata Tele other than absorbing a substantial number of the 5,000 employees and paying part of the spectrum liability that the latter owes to the Department of Telecom.
Tata Tele will retain the entire debt on its books in addition to certain assets, including fixed line, broadband, enterprise operations and its stake in tower company Viom Networks.
Towards consolidation “This is a significant development towards further consolidation in the Indian mobile industry...and further strengthen(S) our market position in several key circles. The acquisition of additional spectrum made an attractive business proposition,” Bharti Airtel Chairman Sunil Bharti Mittal said.
“It will further strengthen our already solid portfolio and create substantial long-term value for our shareholders given the significant synergies,” Mittal added. This is Airtel’s seventh acquisition in the past five years.
Analysts at Bank of America Merill Lynch said the deal was incrementally positive for Bharti. “We see the merger generating opex and capex synergies for Bharti, and fits in well with its strategy of acquiring spectrum from smaller players, as they have done in recent past in transactions with Telenor, Aircel, Qualcomm, Videocon and Augere wireless,” the analysts noted.
“We believe the transaction will contribute to positive EBITDA within a few quarters of completion,” they added.
₹40,000-cr debt pile For the Tata Group, the deal is part of Chairman N Chandrasekaran’s plans to exit a loss-making business. Tata Tele has a debt of about ₹40,000 crore. The company’s losses have been mounting over the past few years after the operator failed to sustain investments in both CDMA and GSM networks.
Accumulated losses stood at ₹38,175 crore as of March. Tata Sons has invested at least ₹50,000 crore in the business over the last two decades.
“There are many errors that Tata Tele did, but the biggest of them was to run duplicate networks on different technologies. It could also not capitalise on the partnership with NTT DoCoMo,” said a former Tata Tele executive.
While the deal with Airtel does not help Tatas reduce the debt pile, it is exploring the option of combining Tata Tele’s telecom enterprise business with group company Tata Communications and its retail fixed-line and broadband business with Tata Sky.
“We believe today’s agreement is the best and most optimal solution for the Tata Group and its stakeholders,” Chandrasekaran said.
“Finding the right home for our long-standing customers and our employees has been the priority for us. We have evaluated multiple options and are pleased to have this agreement with Airtel,” he added.
Amresh Nanadan, Research Director at Gartner, said the deal was a good step as it enables the Tata Group’s customers to move to another operator instead of closing down operations.