Bharti Airtel, the country’s largest mobile operator, on Thursday announced the acquisition of 49 per cent stake in US telecom major Qualcomm Inc’s broadband wireless access (BWA) company in India for an initial investment of $165 million (Rs 907 crore).
With this move, Bharti Airtel will become a key player in the 4G LTE market, with a presence in eight of the 22 circles in the country. The acquisition of Qualcomm’s licence is crucial, as it will give Bharti an entry into four key circles: the lucrative Delhi and Mumbai markets as well as Haryana and Kerala. Bharti, on its own, has 4G spectrum in four circles, including Kolkata, where it has already launched services, Karnataka, Punjab and Maharashtra.
Under the agreement, Bharti will acquire the 13 per cent each held by Global Holding Corporation Private Ltd (part of the GTL group) and Tulip Telecom Ltd, to whom it is paying around Rs 140 crore each. The premium the two investors will earn from the deal comes to an annualised return of around 28 per cent on their investment. The balance equity has been bought by way of subscription of fresh equity in the entity. The deal also contemplates that once commercial operations are launched, subject to certain terms and conditions being met, Bharti would also pick up the remaining 51 per cent stake by May 2014.
Qualcomm had forked out Rs 4,912 crore to win the BWA licence and paid the money through a combination of debt and equity. That included about Rs 1,000 crore in equity and the rest through debt. The interest on the debt for the last two years that the company forked out while waiting for spectrum comes to around Rs 1,000 crore. Based on this, the enterprise value of the company stands around Rs 6,000 crore. Barclays was mandated by Qualcomm to structure the deal.
The US company received its spectrum just a few weeks ago after a bitter battle with the DoT (Department of Telecommunications) and after it moved the TDSAT following a delay of nearly two years. The DoT gave it the spectrum but with the licence period reduced from 20 years to 18.5. The roll-out obligation time was also reduced from five years to three and a half.
Commenting on the deal, Sunil Bharti Mittal, chairman and managing director, Bharti Airtel, said, “This partnership will combine the strength of Bharti’s national telecom footprint and Qualcomm’s technological leadership in the LTE TDD space. With a broadband-ready network across India, Bharti is well positioned to lead the next phase of Indian’s telecom revolution.” Apart from 4G, Bharti has 3G services in 13 circles. Bharti added in its press release that with the deal, “it secured nationwide broadband leadership through a combination of 4G and 3G, with its own networks in 18 circles”.
“One of our key objectives has been to include a strong partner in the Indian venture with the scale, experience and resources to deploy LTE TDD networks. We are pleased to have Bharti’s participation and support in this effort,” said Paul E Jacobs, chairman and CEO of Qualcomm.
Tulip Telecom chairman H S Bedi confirmed his company had been paid Rs 140 crore for the 13 per cent stake. “Yes, we have been paid Rs 140 crore, which is at a premium to what we had spent.” Asked how the Rs 410 crore that Qualcomm has paid to the DoT on Tulip Telecom’s behalf for disputed dues, as directed by the TDSAT, Bedi said, “We had an agreement with Qualcomm that only after we had exhausted all options and not found a remedy would we pay the money back. However, I am confident this is an erroneous demand by the DoT.”
According to top sources, Bharti has also been talking to Aircel for an alliance in the BWA space, which could include using its network to get into seven more circles. According to sources, the circles that have been identified include Andhra Pradesh, Assam, Bihar, the north-east, Odisha, Tamil Nadu and West Bengal.
Depending on the final policy and judgments on whether inter-circle roaming would be deemed legal, the move could help Bharti become a pan-India 4G player, with presence in 15 circles. That would bring it head to head with the only other pan-India player, Reliance Infotel, which is preparing for a major launch by the end of this year. Bharti, however, said it would not like to comment on speculation. Aircel did not comment.
Qualcomm had made it public it would not like to get into the services business and would divest stake to partners. Its main interest in bidding for BWA spectrum was to ensure operators used it to launch services on LTE, a technology it has been backing over Wimax.
The US company’s main interest is to make money by selling chipsets for 4G devices. The company is working on chipsets that will support devices to seamlessly move between 2G, 3G and 4G without the customer realising the change. Qualcomm expects to provide technical assistance to Bharti in connection with network architecture and optimisation, infrastructure and device testing.