Bharti Airtel signed a definitive agreement to acquire Telenor India last week. The acquisition will be made on no-cash, debt-free basis with Bharti taking up the spectrum payment liabilities and tower lease obligations across seven circles where Telenor has presence. While a small positive for Bharti and sector (consolidation), larger focus will remain on potential Idea-Vodafone merger and competitive dynamics especially with RJio ramp up.
Telenor has commercial operations in six circles (Andhra Pradesh, Bihar & Jharkhand, Gujarat, Maharashtra, UP East and UP West) with spectrum holding in Assam as well where commercial operations are limited. The company had 52.5 million subscriber as of January 2017 with revenues of R45 billion as of FY16 and R36 billion in 9MFY17. Telenor India subscribers have an ARPU of R90 (vs Bharti at R172).
One concern the deal has been the tower liabilities of Telenor India which Bharti would take over. Based on Telenor’s CY15 annual report, tower lease obligations in India stood at NOK5bn (R40 billion) for the five year period from 2016-20 and NOK1.1 billion (R8.8 billion) after 2020.
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By the time the deal is completed (i.e, end of CY17, beginning CY18), only three years of tower related liabilities will remain at R8 bn/year which should not be a big concern given the revenue of R45 billion per annum and potential margin synergies.