A slice of Britain: Bharti's BT deal will play out in the long run

Amid demands for consistent and reliable telecom service, there might be an excellent opportunity for those who wish to invest in new 5G infrastructure

The international investment arm of Bharti Enterprises, which runs telecommunications services under the brand name Airtel, has announced the purchase of 24.5 per cent in British telecommunications major BT Group. This stake is being picked up from telecom investment vehicle Altice, which has been struggling to run down its excessive debt. Altice invested in BT Group three yeaRs ago and the value of its shares has declined by a third since then. At the time of the announcement, BT Group was valued at about $17 billion, and it rose by about 7 per cent in the houRs since. The deal will be financed through a combination of cash and debt. Bharti, especially its Indian arm, has struggled in the past with its debt burden.

Why would Bharti Global be interested in BT — which is all that remains of a once dominant state-run telecom company in an economy that has seen stagnant or negative growth for years? The statements from the company itself provide little clarification. It is denied that Bharti will seek to take over the company entirely, or that it wants a seat on the board. In terms of positive reasons, the long history of association between BT and Bharti Airtel is mentioned — the former invested in the latter two decades ago. Bharti will buy 9.99 per cent in BT immediately, while the balance 14.51 per cent will be acquired after regulatory clearances.

A more granular look does, however, reveal some reasonable justification for the purchase. For one, the recent change of government in the United Kingdom (UK) has brought to power a governing team that has very different views on industrial policy and public-private partnership from its predecessor’s. There might well be opportunities to benefit from government patronage and public investment. It would also be a mistake to think of BT merely as a mobile phone service provider, a straightforward competitor for the likes of Vodafone. It also owns BT Openreach, which is the major constructor of the broadband network in the UK. The rollout of fibre in the UK has been slow. But it will likely be speeded up in coming years, given that the major policy priority for the new Labour government is reform of planning law to make it easier to build infrastructure. A quicker rollout would hasten the transformation of Openreach — and thus BT — into a fibre company, with stable revenues that come from a share of broadband rentals.

Bharti’s entry into the UK market comes also at a time when the poor quality of 5G service in that country has become a topic of national conversation. Many ascribe this to the decision, taken in recent yeaRs on national-security grounds, to exclude Huawei-linked equipment from the telecom infrastructure backbone of the UK. Demands for consistent and reliable service mean that there will be an excellent opportunity for those who wish to invest in new 5G infrastructure. It is possible that Bharti sees an opportunity here, as well. What is to be hoped is that such realistic assumptions predominate in this purchase, and that Indian capital is not returning to the age of over-optimism that drove its last set of overseas purchases.