A day after the government approved 50% market share for telecom mergers and acquisitions (M&A), speculation is rife among industry people about possible targets of existing players for acquisitions.
For, the expected consolidation – even this is not a certainty as opinion is divided; read Insight on the next page – would leave just 4-5 operators in the industry over the next two years, experts said.
Loop Mobile, which has a 6% market share and 900 MHz of spectrum in the lucrative circle of Mumbai, is likely to be the first telecom company (telco) to be acquired by one of the bigger players. Loop, whose licence will expire in November 2014, the same time as other top three operators (Bharti Airtel, Vodafone and Idea Cellular), may not have enough funds to bid for fresh spectrum and licences, considering its high debt and relatively tiny if loyal subscriber base.
Shoubit Khare of Motilal Oswal said, “Barring the top three operators, the industry will see mass-scale M&A. And Loop Mobile is a very likely acquisition candidate.”
Bharti Airtel, the industry leader, and Idea Cellular have been saying that they are open to acquisitions, and that they have sufficient funds set aside for upcoming spectrum auctions.
“Since Bharti has a presence only in the 1800 MHz band in Mumbai, it may consider acquiring Loop which has the more efficient 900 MHz band, to increase its market share,” said another telecom expert requesting anonymity. Loop Mobile did not respond to an email query.
Interestingly, in Mumbai, only 13 – yes, 13 – new subscribers were added in the last 12 months, said one analyst, suggesting the circle has reached saturation level, making it unattractive for potential new players.
In a recent report on M&A norms, Hitesh Shah and Abhishek Gupta of IDFC Institutional Securities said, “We expect action in bottom half of the market with five out of the 4th-8th operators combining operations to form 2-3 formidable players.”
“In the long term, we foresee the Indian telecom market having 5-6 operators with deep pockets competing for the consumer wallet share,” they said.
Accordingly, the IDFC analysts expect a piecemeal acquisition of pan-India player Aircel, which has the attractive 900 MHz spectrum in four circles – Tamil Nadu, Assam, the North-East and Jammu & Kashmir – as well as the BWA spectrum.
Given Aircel’s high debt, it would not seem viable for any telco to acquire it completely, which is why previous talks for acquisition by MTS may have failed, experts said. But it still remains a good circle-wise acquisition target for companies like Reliance Jio which is said to be readying for its 4G debut in the North-East.
Although Jio has a tie-up with Reliance Communications (Rcom), some sections of the industry believe that the latter may merge with a foreign player, given that it is the only existing large operator with no foreign interest.
Aircel’s 13 circles may also hold acquisition potential for players like Uninor, which so far only has spectrum in six circles, having lost its remaining spectrum due to 2G licence cancellation.
The IDFC report said, “We believe Tata Teleservices and Telenor may consider a partnership with visible synergies for both the companies. Tata Teleservices, which has not been able to establish scale in its operations over the last decade, will gain from experience of a global player like Telenor (achieved break-even in a few circles in India at 7-9% market share). Media reports indicate that DoCoMo, Tata Teleservices’ existing foreign partner, is looking to exercise its put option in 2014.”
Aircel and TTSL together have a debt amounting to around Rs50,000 crore, which probably makes them unviable for either company to be acquired wholly.