Voda to get spectrum bonanza if Tata Tele deal materialises

Tata, which is a dual technology player, can bring in spectrum across CDMA, 2G, and 3G

Vodafone, the second-largest telecom operator in India, might get a variety of spectra if it goes ahead with its plan of acquiring Tata Teleservices.

Tata Teleservices, the dual-technology player, can bring in spectrum across CDMA, 2G and 3G and add more value to the merged entity, compared to a new operator with only 2G spectrum, say analysts.

“The average revenue per user (ARPU) of the business, especially of dongles, is very good. The CDMA business has opportunity for high-speed data services like long-term evolution (LTE),” said Kunal Bajaj, an independent analyst.

While Vodafone declined to comment on the development of a possible acquisition, Tata Teleservices Maharashtra (TTML), the listed entity, said the development was a speculation. “The article does not pertain to our company and we are not in possession of any unpublished price-sensitive information that is required to be intimated to the exchanges in terms of the listing agreement,” said  TTML.

The stock of TTML went up 10 per cent on Friday’s trade to Rs 8.41.

Even as both the companies have three circles that overlap in 3G, the merged entity will have 15 3G circles offering the highest coverage in the high-speed data network. Currently, both Vodafone and Tata have 3G in nine circles each. While CDMA and 3G are additions to a possible deal, it is 2G licences and spectrum that Vodafone will eye as its own licences are coming up for renewal. “Vodafone will be able to skip participation in 2G spectrum auctions this year if they can acquire. But, the possibility will depend of how much they will be able to pay for the acquisition,” said a telecom analyst, who refused to be quoted.

Vodafone, which had bought Hutchison’s stake in 2007 at a high valuation of 16 times the Ebitda (earnings before interest, tax, depreciation and amortisation), will now go for a hard bargained deal. Analysts expect a very aggressive valuation from Vodafone’s side for three reasons —Tata's telecom business has never been profitable, it has a mounting debt of around Rs 26,000 crore, and its own international partner — Japanese major DOCOMO decided not to make a follow-on investment in the company.

This time, Vodafone is also expected to route its acquisition through its Indian entity. “The timing of a possible deal and the 100 per cent acquisition of Vodafone India by the British parent, is no coincidence,” observes Bajaj. Experts also do not expect tax controversies in this deal as in the 2007 one, as no cross-border acquisition would be involved.

The formerly stringent merger and acquisition rules in the telecom sector, were relaxed by the government a few months back. It is expected to trigger a flurry of activity. “With licences coming up for extension and more liberal M&A guidelines expected soon, in 2014 we see the prospect of some operators buying stakes in other players across numerous circles. This industry has an appetite for three-five national players and a small number of regional players and we may see initial action in this space following the general elections,” said a report by PricewaterhouseCoopers.