Market Insight

Airtel closes acquisition of Uninor

May 14, 2018  | Subscribers Only

Sivalingam Muniandi Sivalingam Muniandi Senior Research Analyst, Service Providers & Platforms
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Bharti Airtel has announced the closure of the acquisition of Telenor India formerly known as Uninor, following the announcement of the deal in February 2017. The Department of Telecom (DOT) approved the merger on 14 May 2018 which officially closed the merger deal. No official statement has been made regarding the expectations for the 4,000 employees of Telenor India.

 

  • The operator will merge the mobile networks, infrastructure, and mobile financial systems of Telenor India into Bharti Airtel.
  • Through this acquisition Bharti Airtel will be integrating its operations in seven of India’s 22 circles – Bihar, Maharashtra, Gujarat, Andhra Pradesh, Assam, East and West Uttar Uttar Pradesh.
  • Apart from the operations in these territories, Airtel also gained 43.4 MHz spectrum in the seven circles.
  • The Airtel mobile customer base is estimated at 320 million after the merger with approximately 33 million contributed by the Telenor India acquisition.
  • Incremental of 3% market share after acquisition makes Airtel stronger in the country with overall 28% market share.
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Our analysis

This merger has occurred amid a wave of consolidation occurring since the entrance of the Reliance Jio to the market cut prices, with data centric tariffs that included free voice and SMS hitting mobile operator’s profitability. The consolidation strategy aims to shore up competitors scale and mitigate the impact created by Reliance Jio’s entry to the market. Although late to the business, Reliance Jio has taken 14% market share and is the 4th largest operator in the country after less than a year since launching.

The chart above shows Bharti Airtel’s quarterly revenue trend for past 2 years, before and after Reliance Jio commercially launched in September 2016. Bharti Airtel showed positive revenue growth until the second quarter of 2016 and starts to decline continuously after Reliance Jio became publicly available in India. Revenue dropped 22% YoY in the 4th quarter of 2017 and Bharti Airtel lost total USD633 million in revenue since Reliance Jio launched in the 2nd quarter of 2016.

The wave of mergers that has shaken up the market also includes India’s second and third largest operator Idea Cellular and Vodafone Essar. The merged company will become the largest operator in India if the plan is approved by DOT. As we can see Vodafone Essar holds 18% of market share and Idea Cellular holds 16% market share, 34% market share in total if the merge happens. That will make Bharti Airtel second rank in the market even after including Telenor India share.

Until recently India had more than 10 active mobile operators, however there will remain only 3 significant private operators after the latest round of mergers completes. This will comprise Bharti Airtel, Vodafone-Idea, Reliance Jio, plus the state-owned enterprises BSNL and MTNL. There is also a very high chance for Aircel to crash out of the industry, as Aircel filed bankruptcy in March this year. While Reliance Communications (RCom) completed a merger with Sistema Shyam Teleservices Limited (MTS), a deal with Aircel failed to complete amid concerns for the business. RCom subsequently closed down much of its operations including its 2G networks and sold its assets to Reliance Jio. The latest figures for March now show RCom supported just 185,568 subscribers as it exited the market.

The experience of Reliance Jio shows that operators in India need to cut costs and create new value, for example developing digital content services to generate additional revenue instead of concentrating in mobile communications products only. Upfront investment is necessary to optimize networks before services can be monetized. In order for digital content services to become self-sustained, operators need to deliver to their online user base with a variety of content and supports services. For example, Reliance Jio’s high mobile data traffic is driven by video contents such as JioTV and JioCinema. This significantly changed the consumer’s usage pattern from voice to data especially accessing video contents. Furthermore, Reliance Jio can easily deploy 5G with the future-ready all IP network that it has built, while competitors may struggle to deal with legacy systems and deliver the necessary operating cost savings to compete effectively in a high-volume data market without significant capital expenditure. That may prove a difficult prospect for investors given the additional price competition and revenue crunch that Reliance Jio has brought to an already low ARPU market.

Geography
India
Research by Market
Mobile & Telecom
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