Airtel dials Tikona to counter Voda-Idea, Jio; bulks up spectrum

After the mega-merger announced by telecom firms Vodafone Plc and Aditya Birla's Idea Cellular early this week, the current market leader Bharti Airtel on Thursday said that it had inked a "definitive agreement" with Mumbai-based network solution provider Tikona Digital Networks to acquire its fourth generation (4G) business including the Broadband Wireless Access (BWA) spectrum and 350 sites in five telecom circles at an approximate value of around Rs 1,500-1,700 crore.

The 20 megahertz (MHz) spectrum in the 2300 MHz band in Gujarat, UP (East), UP (West), Rajasthan and Himachal Pradesh circles acquired through the deal will give Airtel a "sustainable cost position" in these circles.

"It allows Airtel to reach a sustainable cost position in these circles because the more spectrum you have, the cheaper you can offer the data and still make money. It is a good sign because it allows for the emergence of two strong viable players, maybe three," said a telecom analyst with a leading management consultancy firm.

He said the Airtel-Tikona deal was driven more by spectrum than subscriber acquisition and so may not do much to its market share or in closing the widened gap between itself (over 250 million users) and Voda-Idea combine (around 400 million) entity. In contrast, the Vodafone-Idea merger was more an attempt by the two telecom service providers to enhance their customer and revenue market share position in an intensely competitive telecom market.

"The acquisition has nothing to do with subscribers. The value is in the spectrum and that's basically to take on Reliance Jio. Airwaves in the 2300 MHz and 1800 MHz bands allow significant data throughput. So, it's just a spectrum-driven acquisition," said the telecom expert.

There have been a spate of mergers and acquisitions (M&As) in the domestic telecom sector spurred by the entry of Mukesh Ambani's telecom venture Reliance Jio Infocomm Ltd, which launched its free 4G long-term evolution (LTE) voice and data services late last year. Its promotional offer will expire by the end of this month.

Analysts expect the two major telecom deals that have been announced this week to keep the "competitive intensity high", pinning down the voice and data tariff "ensuring that the consumers enjoyed low prices".

"For the industry, I think, that is good because it ensures that competitive intensity will remain high and the consumer will continue to enjoy low prices," said an analyst who did not want to be named.

He also said that Airtel's buyout of Tikona's 4G business will help it take on Jio more aggressively. "It signifies that Airtel is gearing up properly to answer or respond to Jio's onslaught".

A statement issued by Airtel said that it plans to roll out its 4G services on the newly-acquired spectrum in the five circles immediately after the closure of the transaction.

The company said the acquisition in Gujarat, UP (East), UP (West) and Himachal Pradesh would be undertaken by Airtel, while in the Rajasthan, it would be done by its subsidiary Bharti Hexacom Limited.

Currently, Airtel has scarce 4G spectrum in the circles where it has bought out Tikona's spectrum, which was acquired by the latter in 2010 auctions at Rs 1,058 crore, and so the deal will help it fend off pricing offensive launched by other players.

"The deal will significantly bolster Airtel's spectrum position in Gujarat and Himachal Pradesh, taking its overall BWA spectrum holding to 30 MHz each in these circles. Post completion of the deal, Airtel will have 30 MHz in the 2300 MHz band in 13 circles, giving it a tremendous advantage to handle the surging data demand," said the issued by the telco.

Last month, Airtel had announced that it will acquire the Norwegian telco Telenor ASA'Indian venture to strengthen its presence in the 1,800 MHz band. Its deal with Telenor with increase íts subscriber base by 44 million customers and add around 43 MHz of spectrum in the 1,800MHz band and 20,000 base stations.