Tata Tele is second telco Bharti Airtel is getting virtually free this year

Bharti to pay only Rs 1,500-cr spectrum payout for Tata Tele; in its 149-year history, Tatas have never shut down any major unit; this merger deal is being seen as a face-saver for the group

Bharti Airtel, which earlier this year took Norwegian telco Telenor for virtually free, has now acquired Tata Teleservices -- again, for almost free -- taking consolidation in the stressed telecom sector to a new level. 

The cash-free debt-free deal, which will bring in over 71 MHz of liberalised spectrum and add 40 million customers to the Sunil Bharti Mittal-led company at a throwaway price, will also mean that the $103-billion Tata group won’t have to shut down its telecom business and worry about thousands of job losses. In its 149-year-old history, the Tatas have never shut down any major unit, and this merger deal is being seen as a face-saver for the group.   

With the acquisition of the Tatas’ wireless business, Airtel is getting a debt-free company while pushing its user base to around 321 million. The next largest telco in the country is Vodafone at a distant 208 million. However, once the Vodafone-Idea merger is completed, the total subscriber base would cross that of Airtel’s. Idea has 191 million users as of August. The consolidation in the sector is being seen as an outcome of the competitive tariff being offered by newcomer Reliance Jio, which has managed 128 million subscribers in just one year.      

The other gains for Airtel is that it gets 178.5 MHz spectrum (of which 71.3 MHz is liberalised) in the 850, 1800 and 2100 MHz bands across 19 circles and right to use Tata’s existing fibre network. 

It may also emerge as the preferred telecom partner for the Tata Group, executives said. Bharti Airtel will however take over the operational losses from November 1, sources said. 

Tata Teleservices will have to pay off the accumulated debt at over Rs 34,000 crore (for TTSL and TTML together). The two companies made it clear that all the past liabilities and dues would be borne by the Tatas. Out of the total deferred spectrum cost for the Tatas at an estimated Rs 10,000 crore, around Rs 1,500 crore is likely to be picked up by Airtel. The remaining Rs 8,500 crore would be paid by the Tatas to the Department of Telecom, sources said.  

Of course, the 5,500-odd employees of Tata Teleservices would not lose their job, a risk they would have faced in case of a closure. There’s no estimate yet of how many employees will be absorbed in the new set-up. Shutting down entails huge operational costs and therefore giving it for no cost is still a better option than shutting down, sources said. 

Sunil Bharti Mittal, chairman, Bharti Airtel, said, “This is a significant development towards further consolidation in the Indian mobile industry and reinforces our commitment to lead India’s digital revolution by offering world-class and affordable telecom services through a robust technology and solid spectrum portfolio.” On completion, the proposed acquisition will further strengthen Airtel’s market position in several key circles, he added. 

Bharti Board which met Thursday afternoon has approved this transaction.

N Chandrasekaran, chairman, Tata Sons, said, “We believe today's agreement is the best and most optimal solution for the Tata group and its stakeholders. Finding the right home for our longstanding customers and our employees has been the priority for us. We have evaluated multiple options and are pleased to have this agreement with Bharti.’’

Tata group CFO Saurabh Agrawal told Business Standard, “We had to either invest $8-10 billion or exit the business. From capital allocation perspective we thought that we had lost that position where we could make further investments.’’ He added, “Currently we will take additional debt within Tata Sons and take care of all liabilities and then we will refinance it in some form and shape.’’   

The two companies – Bharti Airtel and Tata – have agreed to merge consumer mobile businesses (CMB) of Tata Teleservices and Tata Teleservices Maharashtra. As part of the deal, Airtel will absorb Tatas’ consumer mobile business in 19 circles. Goldman Sachs (India) Securities Private Limited is financial advisor to the Tatas.

The proposed merger will include transfer of all the customers and assets of Tata CMB to Airtel. It will also enable Airtel to bolster its strong spectrum foot-print with the addition of 178.5 MHz spectrum, according to a company statement. 

Tata and Airtel will work together to further explore other mutual areas of cooperation, that will be value accretive for both the Groups, the companies said in a joint statement.

The employees of Tata will be demerged on the lines of the two businesses i.e. CMB and EFL (Enterprise and Fixed Line and Broadband), and post an optimal manpower planning will be moved to Airtel.

Tata is also in initial stages of exploring combination of its enterprise business with Tata Communications and its retail fixed line and broadband business with Tata Sky. Any such transaction will be subject to respective boards and other regulatory approvals.

Tata will retain its stake in the tower company Viom and will take care of the liabilities associated with it.

The Boards of Tata Sons, TTSL and TTML have approved this transaction.

AIRTEL’S ACQUISITIONS IN THE PAST 5 YEARS
 

• Qualcomm AP’s India

May 2012

Circles: Delhi, Mumbai, Haryana and Kerala

• Augere Wireless Broadband India

August 2015

Circles: Madhya Pradesh and Chhattisgarh (MPCG)

• Videocon Telecommunications

March 2016

Circles: Bihar, Gujarat, Haryana, Madhya Pradesh, UP (East) and UP (West)

• Aircel Dishnet Wireless

April 2016

Circles: Tamil Nadu (including Chennai), Bihar, Jammu & Kashmir, West Bengal, Assam, Northeast, Orissa and Andhra Pradesh

• Telenor (India) Communications

February 2017

Circles: Andhra Pradesh, Bihar, Maharashtra, Gujarat, UP (East), UP (West) and Assam

• Tikona Digital Networks

March 2017

Circles: Gujarat, UP (East), UP (West), Rajasthan and Himachal Pradesh