Vodafone-Idea Merger ‘Perfect Match’ For Bharti Airtel, Agree Analysts
How will the Vodafone-Idea merger benefit Bharti Airtel?
“It’s a perfect match” -- that’s how Bharti Airtel Ltd.’s chairman Sunil Mittal had described the potential merger between Vodafone India Ltd. and Idea Cellular Ltd. in a conversation with BloombergQuint.
Brokerages agree with Mittal even though the merged entity, with a market share of 43 percent, could replace Bharti Airtel (33 percent) as India’s largest mobile carrier.
Analysts say the potential merger between its rivals could give the company a chance to pick up cheaper spectrum and an opportunity to gain market share in more than one way.
Bharti Airtel remains our top pick in the telecom sector, and we believe the company is well positioned to benefit from ongoing industry consolidation.Goldman Sachs Report
Along with Goldman Sachs, UBS, HSBC Global Research, ICICI Securities, BNP Paribas, JM Financial and New Street Research have retained their buy rating on Bharti Airtel.
Global brokerage house HSBC considers the merger to be apt for the industry as three large players is the preferred market structure in the telecom industry.
Bharti Airtel’s managing director and chief executive officer Gopal Vittal agreed that the potential consolidation will be positive for the sector.
Consolidation is always good, especially for any capital-intensive sector with multiple players. A few solid and profitable players are always better for an industry, as they can make substantial investments and offer quality products and services to customers in a sustainable fashion.Gopal Vittal, MD and CEO, Bharti Airtel
Spectrum Up For Grabs?
According to the merger and acquisition guidelines, the combined entity should hold less than 50 percent of the spectrum in each band individually, in addition to holding less than 25 percent of the airwaves allocated to all operators across bands and circles.
The proposed Vodafone India-Idea Cellular combine exceeds the spectrum holding cap in five circles – Maharashtra, Gujarat, Kerala, Haryana and Uttar Pradesh (West).
The merged entity will either have to sell the excess spectrum or surrender it to the government for free. Bharti Airtel lacks spectrum in the five circles and analysts suggest it could be the potential buyer for the excess airwaves.
Bharti Airtel could be one of the telecom entities interested in buying the excess spectrum owned by the combined entity of Vodafone-Idea, especially in the 900 MHz band.Ashoo Mishra, Associate Director, India Ratings and Research
Lower-frequency bands like 900 MHz are considered to be better as they cover a wider area and can be used to provide both second generation (2G) and fourth generation (4G) services. Currently, Bharti Airtel owns around 110.2 MHz of spectrum in the 900 MHz band across 15 circles.
And the spectrum could come at a lower price than Vodafone or Idea had paid for it.
The combined entity would have to let go of spectrum worth Rs 6,000 crore (primarily in the premium 900 MHz band) – probably at a lower price than originally purchased.Credit Suisse Report
Another analyst told BloombergQuint that Airtel could be the only interested buyer for the excess spectrum as Reliance Jio Infocomm Ltd. already owns airwaves in the 800 MHz band and may not be interested in buying more.
Reliance Jio owns 22.5 MHz of spectrum in the 800 MHz band in the five circles.
Opportunity To Gain Market Share
The merger and acquisition guidelines also specify that the merged entity will have to bring down its revenue market share and subscriber base below 50 percent in any particular circle within a period of one year. These regulatory constraints on the merged entity could help Bharti Airtel gain market share.
If a merger proposal is finalised, the next three-to-four quarters should provide Bharti with an opportunity to take (boost) market share, as both Vodafone and Idea become involved with the approval process.HSBC Global Research’s Report
Bharti Airtel could also acquire weaker players like Telenor India Communications Pvt Ltd. and Tata Teleservices Ltd. to “shore up its pan-India revenue share to a level of 40 percent and maintain its position relative to the proposed merged entity”, said a report by Deutsche Bank Market Research.
Even after the Vodafone-Idea merger, Bharti Airtel will remain the number one player in 11 of the 22 circles.
