Bharti Airtel on Thursday said it would buy spectrum across six circles from Videocon for R4,428 crore, in a transaction that will enhance the telco’s 4G coverage. The purchase will increase Bharti’s 4G coverage from the current 15 to 19 circles of the total 22 circles, making it the most effective challenger to Reliance Jio, which has the capability to offer 4G services across all circles. Bharti’s other challengers, Idea Cellular and Vodafone, currently offer 4G services in 10 and five circles, respectively.
The deal was struck within 24 hours of Idea Cellular terminating its 1800 Mhz spectrum trading deal with Videocon Telecommunications for Gujarat and Uttar Pradesh (West) circles.
The transaction may have been called off ostensibly because the price was too high — 149% higher than what Videocon had paid for the two circles in 2012 and 98% higher than the auction-determined price in March 2015.
Bharti, however, has bought spectrum across all six circles at a reasonable price.
Idea had entered into an agreement with Videocon in November last year to buy the spectrum in the two circles to increase its 4G footprint. With this deal, 93% of Bharti’s revenue base will get under 4G coverage. The six circles contribute 23% to the company’s overall revenues.
Bharti, the country’s biggest telecom operator, will get 5 Mhz of contiguous spectrum in the 1800 Mhz band across Bihar, Haryana, Madhya Pradesh, Uttar Pradesh (east), Uttar Pradesh (west), and Gujarat. Of these, currently it has spectrum in the band to offer 4G services only in two of them – Haryana and MP. It has 1800 Mhz spectrum in other four circles as well but these are not liberalised so cannot be used for providing 4G services.
Bharti has paid 38% more than the reserve price for 5 Mhz of 1800 Mhz spectrum as recommended by the Telecom Regulatory Authority (TRAI) for these six circles for auctions to be held in May-June. This is 61% higher than the auction-determined price of the March 2015 auctions and 99% more than 2012 auctions where Videocon bought the spectrum.
Idea may have terminated the deal because the reserve price, which was announced much after it entered into the agreement, for all the six circles was Rs 3,205 crore, lower than Rs 3,310 crore the elco was paying for only two circles. Further, since 14.8 Mhz of 1800 Mhz spectrum will be put up for forthcoming auction in UP (West) and 9 Mhz in Gujarat, Idea may have thought it is better to buy it then. With Bharti out from the race, it will now have to compete with only Vodafone in these circles.
Apart from the gain made by Videocon, the government will also get an amount of Rs 619 crore, of which Videocon will pay it Rs 575 crore and Bharti Rs 44 crore. This is because under the trading guidelines, the seller (Videocon in this case) needs to pay to the government licence fee and spectrum usage charge amounting to 13% on the amount they receive from the buyer (Bharti). The buyer (Bharti) would have to pay a transaction charge to the government which will be 1% of the transaction amount.