JIO EFFECT: AIRTEL MERGES WITH TELNOR

o Largest provider of mobile telephony and 2nd largest provider of fixed telephony.

o Also a provider of broadband & subscription services.o Brand is operated by several subsidiaries such as bharathi airtel, bharathi

hexacom, & bharath tele-media providing broadband fixed line services and Bharti Infratel providing telecom passive infrastructure service such as telecom equipment and telecom towers.

o Bharti Airtel Limited is part of Bharti Enterprises and is headed by Sunil Bharti Mittal.

o Airtel is the first Indian telecom service provider to achieve Cisco Gold Certification.

o It also acts as a carrier for national and international long distance communication services.

o The company has a submarine cable landing station at Chennai, with a connection to Singapore.

o As of September 2016, Airtel has 255.73 million subscribers with a market share of 24.7% in the Indian telephony market. Airtel was named India's second most valuable brand in the first ever Brands ranking by Millward Brown and WPP plc.

o Telenor (India) Communications Private Limited, formerly known as Uninor, was an Indian mobile network operator.

o The company Unitech Wireless Limited, a subsidiary of Unitech Group, was incorporated in 2008.

o The same year, the company was awarded wireless services licences for all 22 telecom circles.

o Subsequently, Unitech Group and Telenor Group agreed to enter a joint venture where Telenor would inject fresh equity investments of ₹61.35 billion into Unitech Wireless to take a majority stake in the company.

o The company was a wholly owned subsidiary of Norwegian telecommunications company Telenor Group. On 2 February 2012, the Supreme Court of India cancelled 122 licenses of 22 mobile operators, including Uninor.

o In July 2012, Uninor decided to gradually scale down operations in 4 telecom circles - Karnataka, Kerala, Orissa and Tamil Nadu.

o In October 2012, the two companies signed an agreement under which Unitech transferred Uninor assets to Telenor and exited the joint venture.

o On 23rd February 2017, Telenor India was acquired by Bharti Airtel.

RELIANCE JIO EFFECT: BHARTI AIRTEL GETS TELENOR FOR FREEo Bharti to spend Rs1,600 cr for spectrum pay-out over 10 years; Telenor to service

its own debt.o In what will lead to yet another multinational exit in the telecom space, Bharti Airtel

on Thursday announced the acquisition of  Telenor India. It’s a no-cash deal, which will see Norway’s telco packing up and leaving the country, as business had become unsustainable. 

o Cost incurred will be 1600cr as it will be used to payoff o/s amount of spectrum acquired by Telenor.

o The spectrum payment will be made in phases for the next 10 years. Saying that telecom was a “spectrum game’’, a source added the additional spectrum of 43.4 MHz in the 1,800-MHz band, known for 4G data efficiency, coming from Telenor, was expected to be “more than sufficient for Bharti over the next four to five years”.

o The acquired company’s debt of about Rs1,500 crore will be serviced by Telenor itself.

o While Bharti would gain around 44 million new subscribers, adding to its current base of 269 million, once the deal fructifies by end of the year, Telenor would get to exit without paying any severance charges for its infrastructure contracts and tower lease deals.

o Bharti would replace Telenor in those agreements with the likes of IBM, Ericsson and Nokia.

o The takeover would fortify Bharti against competition like Jio and also the proposed Vodafone-Idea merger.

o As part of the agreement, Bharti will acquire Telenor India’s running operations in seven circles — Andhra Pradesh, Bihar, Maharashtra, Gujarat, UP (East), UP (West) and Assam. These circles represent a high population concentration and, therefore, offer a high potential for growth.

o The acquisition will cross the 50-per cent revenue market share threshold in the Bihar circle, which would require trimming 9.2 per cent of Telenor’s revenue.

o Some analysts said higher customer base through acquisition is not expected to automatically translate into increase in revenues for Bharti as most of the Telenor users are low income customers.

Advantage of

Tale ofo Telenor had signed a JV with Unitech in 2009 and it invested Rs 6,135 crore

through equity and a little over Rs8,000 crore in debt.o “From Telenor’s perspective it must be disappointing to exit the market

because they have significant presence in South Asia, in Pakistan and Bangladesh,”

o According to sources, there will be downsizing of Telenor India’s 4,000 employees, including 700 permanent ones. Bharti has around 19,000 employees, and there could be overlaps in roles.

o In calendar year 2016, Telenor India's total revenues grew 7.9 per cent to Norwegian Krone 6 billion (Rs4,700 crore). Its earnings before interest, tax, depreciation and amortisation stood at Norwegian Krone 434 million (Rs340 crore) against a loss of Norwegian Krone 47 million in 2015. However, Telenor took an impairment loss and write-downs in its India operation of Norwegian Krone 7.4 billion (Rs5,800 crore) in 2016.

Sector Consolidationo Entry of Reliance Jio in September 2016 and its free promotional offers have

forced the industry to work towards consolidation. Some experts are of the view that consolidation is the only answer to battle a newcomer like Reliance Jio.

o Analysts feel that the end consumer would be a beneficiary of consolidation as the top four players will be expected to make substantial investments towards improvement of infrastructure.

o However, there is a flip-side to consolidation as it would mean increase in tariff in the future.

o Once competitive pressures ease in the next year or so, the current tariffs would start inching upwards.

o Consolidation is being driven by intense pricing, competitive pressure and other such mathematics.

o On January 30, UK-based telecom giant Vodafone announced that it was in talks for an all-stock merger of its unlisted Indian subsidiary with rival Idea Cellular. The proposed move would make the merged entity India’s largest telecom company in terms of revenue, at 43 per cent.

Bharti Airtel-Telenor deal: 5 reasons why it had to happen1. The spectrum gain 

The defining feature of Bharti Airtel's acquisition is spectrum. Spectrum matters more than anything else for Bharti Airtel in this deal. Telenor will give Bharti Airtel an additional 43.4 MHz spectrum in the 1800 MHz band. This will boost Airtel's already robust spectrum kitty. 

2. The 4G edge The spectrum gain from Telenor acquisition will add critical value to the company when fast data has come to rule the Indian telecom market. Bharti Airtel is rolling out its 4G services in 1,800 MHz band and 2,100Mhz band. Telenor's 43.4 MHz spectrum in the 1800 MHz band will certainly power Bharti Airtel's 4G services. 

3. The subscriber base The Telenor acquisition will give Bharti Airtel 52.5 million subscribers. This will be a significant addition to Bharti Airtel's 269 million subscriber base in the country, especially when Vodafone’s 205 million subscribers and Idea's 190 million add up to a big challenge to the company, not to forget Reliance Jio making biggest subscriber gains in recent months.

Continuation…4. Most-valued footprint Telenor's operations will empower Bharti Airtel in India's most densely populated regions. Telenor has operations in seven circles: Andhra Pradesh, Bihar, Maharashtra, Gujarat, UP (East), UP (West) and Assam. All these regions are now crucial for telecom companies as they are not only densely populated but also hold vast potential as mobile services and infrastructure spread in the under-served interiors of India at a rapid pace. 

5. Beating the rivals Early this month, there were reports about Telenor looking to merge its India operations with Reliance Communications. Bharti Airtel's swift swoop on Telenor has given it an edge over its rivals as Telenor would have been bought by Bharti Airtel's rivals sooner or later due to growing consolidation after Reliance Jio's entry.

Free offer’s cost the Govt 800cro Reliance Jio's promotional offers may not be 'predatory' but the tariff-war

triggered by it seems to have robbed the government of almost Rs800 crore in revenue.

o Telecom Secretary JS Deepak to write to the Telecom Regulatory Authority of India (Trai) asking it to restrict the period of 'promotional tariffs' offered by telecom companies.

o Telecom Secretary has written to Telecom Regulator for restrictions on promotional offers which can stretch up to 90 days.

o Government revenues from just the licence fee have fallen from Rs 3,975 crore in the June quarter to Rs 3186 crore in the December quarter of the current financial year.

o The government collects licence fees and spectrum usage charges from operators, which are calculated on the basis of their revenue. Jio's free offers forced Bharti Airtel, Vodafone India and Idea Cellular to bring down their charges, leading to a drop in their revenue.

Continuation…o The Telecom Secretary's letter endorses the view of other telecom service

providers who have been opposing Reliance Jio's free voice and data plans. o The disruption began when the Mukesh Ambani announced the Welcome

Offer which later turned into Happy New Year offer in December.o Airtel chief Sunil Bharti Mittal had called Mukesh Ambani's promotional offers

as 'predatory'. Not only this, he also filed a complaint with the Competition Commission of India or CCI accusing the Mukesh Ambani-led firm of anti-competitive behaviour.

o Under pressure from Jio's free data and voice plans, Airtel slashed its data charges heavily and offered multiple offers to match Reliance Jio's offers.

o However, it did not go well with Airtel's balance sheet and it reported over 54 per cent fall in net profit to Rs503.7 crore for October-December quarter of 2016.

o According to reports, the Telecom Commission - the highest decision-making body for the sector - has communicated to the Trai the ''urgent need'' to review its tariff orders and directions