Tata Teleservices to pay outstanding spectrum dues in deal with Bharti Airtel for mobile consumer business

Bharti Airtel has clinched the sweetest deal to date. Tata Teleservices would not only sell its mobile consumer business to Bharti on “equity-free and debt-free” basis, it would also pay the majority of the outstanding spectrum dues.

Though the two companies have not disclosed details, sources say that the Tata Group will pay nearly 90% of the outstanding spectrum dues of about Rs 10,000 crore that is to be paid over a period of 10 years.

Market leader Bharti Airtel is the only buyer in the telecom sector. It acquired four mobile businesses since March 2016 – Videocon, Aircel, Telenor, and Tikona.

In March 2016, it acquired Videocon’s spectrum in six circles for Rs 4,428 crore. It was termed as a win-win situation for both Bharti and Videocon as the later got about two times premium over what it paid for the spectrum. Bharti got liberalized spectrum in 1800 MHz band that could be used for 4G. Videocon had spectrum in Bihar, Haryana, Madhya Pradesh, Uttar Pradesh (East), Uttar Pradesh (West) and Gujarat.

In April 2016, it acquired Aircel’s 2300 Mhz spectrum in eight circles for Rs 3,500 crore. Aircel had bought the spectrum for Rs 3,438 crore. These circles are – Tamil Nadu, Bihar, J&K, West Bengal, Assam, North-East, Andhra Pradesh and Orissa.

In February 2017, it announced singing agreement to acquire Telenor through no equity and no debt deal. Telenor has operations in Gujarat, UP (East), UP (West), Rajasthan, Maharashtra, Bihar, Andhra Pradesh and Assam.

In March 2017, it bought Tikona’s 4G spectrum in four circles – Gujarat, UP (East), UP (West), Rajasthan and HP. Tikona paid about Rs 1,070 crore for the spectrum.

Its deal with Tata gives it spectrum in 19 circles in 1800 Mhz, 800 MHz and 2100 MHz bands and a subscriber base of 40 million.

No wonder, Bharti Airtel’s share was today trading at 7% higher than its closing price on Thursday.

What has changed in telecom sector?

Entry of Reliance Jio has redefined the dynamics of the sector. It brought revolution in the data-starved Indian market by offering disruptive 4G technology at very reasonable prices to consumers. The incumbent operators, who have not upgraded their networks for last few years couldn’t match Jio in quality and prices. That is why the process of merger and acquisition accelerated when Jio launched its services, last year.

“What has changed in last one year is a perception about the telecom market,” said Arvind Bali, CEO of Videocon Telecom. “That is the reason that Bharti Airtel has got a good deal and there is no premium for spectrum.”

However, the sector was reeling under huge debt even before the entry of Jio as it is clear from the table below and the EBIDTA is falling.

Industry Debt

Declining EBITDA

The main reason for huge debt and poor financial health of the sector is bad business decisions of the incumbent operators. For example, Bharti Airtel accumulated debt due to its expansion in African markets, while Vodafone paid a high premium to its original promoters – Essar and Hutchison.

RCOM and Tata Teleservices were not successful due to the wrong choice of technology. Entry of Jio has accelerated merger and acquisition activities. Finally, only two or three players will remain in the market.