Telecom
Industry An Overview : M&As are for real or just mere talks!!
Various PnCs if it moves towards Consolidation...
New rule to
kickstart consolidation
Telecom M&As: Time for consolidation
Now that the Department of Telecom has cleared the revised merger and acquisition (M&A) policy for the telecom sector, consolidation among the top three operators is virtually ruled out though there is ample scope for them to weigh acquisition of regional operators. Here's a look at five possible scenarios...
Telecom M&As: Time for consolidation
Now that the Department of Telecom has cleared the revised merger and acquisition (M&A) policy for the telecom sector, consolidation among the top three operators is virtually ruled out though there is ample scope for them to weigh acquisition of regional operators. Here's a look at five possible scenarios...
Scenario 1
Bharti Airtel buys Loop Telecom
TARGET: GSM Operator Loop Telecom ~6% and ~10% revenue and subscriber market share, respectively, in the Mumbai service area
USP: Holds 8MHz in the 900 MHz spectrum band
REASON: Airtel, with revenue market share (RMS) of ~21%, closes the gap with Vodafone, with RMS of ~35% in Mumbai
HURDLES: One, Bharti Airtel would breach the spectrum holding limit (~29% of overall spectrum supply vs the permitted limit of 25%). Hence, it would have to surrender part of the 1800MHz spectrum holding. Two, no reservation for incumbents in re-farming of 900MHz spectrum and high debt levels of Loop
Bharti Airtel buys Loop Telecom
TARGET: GSM Operator Loop Telecom ~6% and ~10% revenue and subscriber market share, respectively, in the Mumbai service area
USP: Holds 8MHz in the 900 MHz spectrum band
REASON: Airtel, with revenue market share (RMS) of ~21%, closes the gap with Vodafone, with RMS of ~35% in Mumbai
HURDLES: One, Bharti Airtel would breach the spectrum holding limit (~29% of overall spectrum supply vs the permitted limit of 25%). Hence, it would have to surrender part of the 1800MHz spectrum holding. Two, no reservation for incumbents in re-farming of 900MHz spectrum and high debt levels of Loop
Scenario 2
Idea Cellular buys Loop Telecom
TARGET: GSM Operator Loop Telecom ~6% and ~10% revenue and subscriber market share in the Mumbai service area
USP: Holds 8MHz in the 900MHz spectrum band
REASON: Post-deal, Idea's RMS would be about 15.5%. Overtakes Tata Teleservices (RMS: 13.5%) and Reliance Communications (RMS: 10.5%) in Mumbai
HURDLES: No reservation for incumbents in refarming of 900MHz spectrum and high debt levels of Loop
Idea Cellular buys Loop Telecom
TARGET: GSM Operator Loop Telecom ~6% and ~10% revenue and subscriber market share in the Mumbai service area
USP: Holds 8MHz in the 900MHz spectrum band
REASON: Post-deal, Idea's RMS would be about 15.5%. Overtakes Tata Teleservices (RMS: 13.5%) and Reliance Communications (RMS: 10.5%) in Mumbai
HURDLES: No reservation for incumbents in refarming of 900MHz spectrum and high debt levels of Loop
Scenario 3
Idea Cellular buys Aircel
TARGET: Aircel, a pan-India wireless operator with about 5% and 7% revenue and subscriber market share, respectively Has spectrum in the 900MHz band in four of its legacy circles (TN, Assam, North East and J&K; RMS 21-26% Has 3G spectrum in 13 circles (including key circles like Kolkata, AP, TN, and Karnataka) and 4G/LTE spectrum in eight circles
REASON: Idea, the No. 3 pan-India operator with RMS of about 16% currently and about 21% after the deal, would close the gap with No. 2 Vodafone with RMS of about 23% on a pan-India basis. In terms of market share, Idea would gain 1.5-3.0x across circles like Kolkata, West Bengal, Orissa, Rajasthan, HP, Bihar and more substantially in TN, North East, J&K and Assam The deal will have scale advantages for Idea, which would help it lower EBITDA losses in these circles
HURDLES: One, the merged entity would breach the spectrumholding limit in circles where Aircel has 4G/LTE spectrum
Two, in the absence of an active strategy to rollout 4G, we believe Aircel may consider either surrendering the spectrum to the government or selling it off as a separate asset
Three, high leverage on Aircel balance sheet and concentrated revenues could hurt interest
Idea Cellular buys Aircel
TARGET: Aircel, a pan-India wireless operator with about 5% and 7% revenue and subscriber market share, respectively Has spectrum in the 900MHz band in four of its legacy circles (TN, Assam, North East and J&K; RMS 21-26% Has 3G spectrum in 13 circles (including key circles like Kolkata, AP, TN, and Karnataka) and 4G/LTE spectrum in eight circles
REASON: Idea, the No. 3 pan-India operator with RMS of about 16% currently and about 21% after the deal, would close the gap with No. 2 Vodafone with RMS of about 23% on a pan-India basis. In terms of market share, Idea would gain 1.5-3.0x across circles like Kolkata, West Bengal, Orissa, Rajasthan, HP, Bihar and more substantially in TN, North East, J&K and Assam The deal will have scale advantages for Idea, which would help it lower EBITDA losses in these circles
HURDLES: One, the merged entity would breach the spectrumholding limit in circles where Aircel has 4G/LTE spectrum
Two, in the absence of an active strategy to rollout 4G, we believe Aircel may consider either surrendering the spectrum to the government or selling it off as a separate asset
Three, high leverage on Aircel balance sheet and concentrated revenues could hurt interest
Scenario 4
Vodafone + Quadrant Televentures (Punjab)
TARGET: Quadrant, an incumbent operator in Punjab service area with ~4% and ~5% revenue and subscriber market share, respectively
Holds 4.4MHz of the 900MHz band and 2.5MHz of CDMA spectrum in the 800MHz band
REASON: Vodafone, with about 19% RMS, would gain a notch on market position and overtake Idea Cellular as the No. 2 operator in Punjab.
HURDLES: No regulatory hurdles seen
Vodafone + Quadrant Televentures (Punjab)
TARGET: Quadrant, an incumbent operator in Punjab service area with ~4% and ~5% revenue and subscriber market share, respectively
Holds 4.4MHz of the 900MHz band and 2.5MHz of CDMA spectrum in the 800MHz band
REASON: Vodafone, with about 19% RMS, would gain a notch on market position and overtake Idea Cellular as the No. 2 operator in Punjab.
HURDLES: No regulatory hurdles seen
Scenario 5
Tata Teleservices + Telenor buy Aircel
TARGET: Tata Teleservices and Telenor may consider a partnership. This combo could also consider acquiring Aircel
REASON: The three together could become the No. 4 operator pan-India, with about 14% market share. Aircel's 3G spectrum is a good fit for Tata Tele and the combined entity will have 3G licence in 19 circles (pan-India excluding Delhi, Mumbai and Himachal)
HURDLES: One, the combined entity would breach the spectrum-holding limit in five circles due to Aircel's 4G spectrum
Two, merger of the two pan-India operators and one regional rival would take considerable management effort to pull through
Three, high leverage on Aircel's balance sheet will be a challenge
Tata Teleservices + Telenor buy Aircel
TARGET: Tata Teleservices and Telenor may consider a partnership. This combo could also consider acquiring Aircel
REASON: The three together could become the No. 4 operator pan-India, with about 14% market share. Aircel's 3G spectrum is a good fit for Tata Tele and the combined entity will have 3G licence in 19 circles (pan-India excluding Delhi, Mumbai and Himachal)
HURDLES: One, the combined entity would breach the spectrum-holding limit in five circles due to Aircel's 4G spectrum
Two, merger of the two pan-India operators and one regional rival would take considerable management effort to pull through
Three, high leverage on Aircel's balance sheet will be a challenge
Though the rules have been relaxed, there are complexities
on biz operations in the market, Significant Consolidation may not be there in
immediate future...
“Consolidation will not be very easy given the various permutations
which are now emerging,” chief financial officer Vsevolod Rozanov told ET,
adding that the company itself isn’t looking at any M&A deal till it
becomes Ebitda positive the internal deadline for which is the end of 2014. ET
had reported earlier that Sistema was in preliminary talks for a three way
merger with Tata Teleservices and Aircel, both struggling to survive in an
intensely competitive market.
Rozanov said that only four private
telecom operators could operate in this market but the challenge will be how
the remaining market divides itself between the consolidators.
The Indian market currently has as many as 12 operators in some service areas and the sector has been desperate for favourable merger and acquisition (M&A) rules as intense competition has left them bleeding. Most of them have huge debt on their books, taken mainly for expansion and the 3G spectrum auctions in 2010. Some haven’t even rolled out services in some areas.
The new M&A guidelines cleared by the empowered group of ministers on Tuesday eased consolidation by allowing companies to merge or acquire another so far the market share doesn’t exceed 50% in a circle, up from 35% allowed earlier. An operator, however, will be entitled to only one block of spectrum which had been allotted at an administrative price, or without an auction process. The merged entity would need to pay the market price for any additional bandwidth beyond that one block.
The government has also decided to retain the spectrum cap of a merged entity at 25% of total airwaves assigned for access services and 50% of the bandwidth assigned in a given band, by way of auction or otherwise, in the concerned service area. Analysts say the guidelines rule out any merger among the top three operators Bharti Airtel, Vodafone India and Idea Cellular. They mainly encourage smaller operators to combine with each other, though some of the bigger players can acquire specific circles of smaller operators.
“We expect meaningful consolidation in the bottom half of the market with only 2-3 of the 4th-8th operators surviving in the long run,” brokerage IDFC Securities said in a note.
In another note, Rohit Dokania, an analyst at Batlivala & Karani Securities, said that while the new rules did give room to Bharti Airtel and Vodafone India to pursue M&A activity on a circle-wise basis, but the fact that they would need to pay for bandwidth in excess of 4.4 MHz was a damper.
The rule “obviously ensures that only operators with 4.4 MHz spectrum (in a specific circle) can acquire some other operator – thus only two smaller players are encouraged to merge,” Dokania said. Analysts though were unanimous that clarity was needed on issues such as spectrum trading, spectrum usage charge (SUC) and one-time spectrum charge to encourage M&A.
The government has already asked Telecom Regulatory Authority of India to submit recommendations on trading, which the regulator is scheduled to do by mid-January, a week before the auction slated to start January 21.
The government has also indicated that it is in favour of a flat spectrum usage charge instead of the current cascading system based on the quantum of airwaves held, which, operators and analysts say, acts as a deterrent to an M&A deal.
The Indian market currently has as many as 12 operators in some service areas and the sector has been desperate for favourable merger and acquisition (M&A) rules as intense competition has left them bleeding. Most of them have huge debt on their books, taken mainly for expansion and the 3G spectrum auctions in 2010. Some haven’t even rolled out services in some areas.
The new M&A guidelines cleared by the empowered group of ministers on Tuesday eased consolidation by allowing companies to merge or acquire another so far the market share doesn’t exceed 50% in a circle, up from 35% allowed earlier. An operator, however, will be entitled to only one block of spectrum which had been allotted at an administrative price, or without an auction process. The merged entity would need to pay the market price for any additional bandwidth beyond that one block.
The government has also decided to retain the spectrum cap of a merged entity at 25% of total airwaves assigned for access services and 50% of the bandwidth assigned in a given band, by way of auction or otherwise, in the concerned service area. Analysts say the guidelines rule out any merger among the top three operators Bharti Airtel, Vodafone India and Idea Cellular. They mainly encourage smaller operators to combine with each other, though some of the bigger players can acquire specific circles of smaller operators.
“We expect meaningful consolidation in the bottom half of the market with only 2-3 of the 4th-8th operators surviving in the long run,” brokerage IDFC Securities said in a note.
In another note, Rohit Dokania, an analyst at Batlivala & Karani Securities, said that while the new rules did give room to Bharti Airtel and Vodafone India to pursue M&A activity on a circle-wise basis, but the fact that they would need to pay for bandwidth in excess of 4.4 MHz was a damper.
The rule “obviously ensures that only operators with 4.4 MHz spectrum (in a specific circle) can acquire some other operator – thus only two smaller players are encouraged to merge,” Dokania said. Analysts though were unanimous that clarity was needed on issues such as spectrum trading, spectrum usage charge (SUC) and one-time spectrum charge to encourage M&A.
The government has already asked Telecom Regulatory Authority of India to submit recommendations on trading, which the regulator is scheduled to do by mid-January, a week before the auction slated to start January 21.
The government has also indicated that it is in favour of a flat spectrum usage charge instead of the current cascading system based on the quantum of airwaves held, which, operators and analysts say, acts as a deterrent to an M&A deal.
Ref: An ET Article By ANANDITA SINGH
MANKOTIA & ROMIT GUHA
0 comments:
Post a Comment