Idea buys Escotel for Rs 350 crore

In one of the biggest acquisitions in the telecom sector, Idea Cellular bought out Escorts Ltd's mobile business, Escotel Mobile Ltd and Escorts Telecom Ltd, for around Rs 300-350 crore in an all-cash deal.

The transaction includes six telecom circles and more than 825,000 subscribers, which will catapult Idea Cellular's subscriber base to over 3 million across 11 circles from 2.24 million in five circles now.

While this will still keep Idea Cellular at the fifth spot in the mobile telecom market in terms of subscribers, the acquisition will allow the company to join the likes of Bharti Tele-Ventures, Essar-Hutchison, Bharat Sanchar Nigam and Reliance Infocomm, which have a national footprint with operations in over 10 circles.

This would also take Idea Cellular's market share in the GSM (global system for mobile) segment to nearly 15 per cent from the current 10 per cent.

Idea will also have the incumbency advantage in as many as seven circles, which will entitle the company to an additional 2 per cent reduction in licence fees for four years from April 1, 2004, which has been granted only to the incumbent first and second operators in non-metro circles.

The deal, subject to statutory approvals, will also require the consent of lender groups. This is the second acquisition for Idea Cellular after it bought out RPG Celcom's licence in Madhya Pradesh last year.

After the acquisition there will not be any major change in the merged company's management. Rajan Swarup will continue as the chief executive officer of the six circles that were under Escorts.

Of the two companies bought by Idea Cellular, Escotel Mobile is a 51:49 joint venture between the Nandas-promoted Escorts Group and the Hong Kong-based First Pacific Ltd. The company offers mobile services in Kerala, Haryana and Uttar Pradesh (West).

Escotel is the leading operator in Uttar Pradesh (West) and number two in Kerala and Haryana. The company is already cash positive. It, however, has a debt of Rs 796 crore.

The second company, Escorts Telecom Ltd, is a 100 per cent subsidiary of Escorts Ltd and has licences for Uttar Pradesh (East), Rajasthan, and Himachal Pradesh, which it bagged during auctions for the fourth cellular licence.

However, services could not be launched in the circles for lack of funds. Escorts has been scouting for a strategic partner to commence services here.

For the last six months, Escorts has been in talks with Idea Cellular and Bharti Tele-Ventures for selling out its telecom units.

Idea Cellular, a joint venture between Tata, Birla and the US-based AT&T, offers cellular services in Delhi, Maharashtra, Gujarat, Andhra Pradesh and Madhya Pradesh.

The six new circles will give Idea a presence in contiguous circles. Telecom analysts said it made sense for Idea to acquire readymade circles rather than new networks.

"Idea could have invested less by setting up a new network after acquiring unified licences. But then it would have had to invest heavily in acquiring subscribers in a market where well-established players would have had the first-mover advantage. Through this acquisition Idea gets 800,000 subscribers overnight," analysts said. They also said the telecom sector would see further mergers in the near future.

The impact

• Idea network to cover 65% of the telecom market
• Marketshare to go up from 10% to 15% with over 3 million subscribers, just 77,000 users behind Hutch
• Number of circles increases from 5 to 11, overtakes Hutch but behind Bharti, BSNL and Reliance