The day after any failed deal is always a sour one. But not for the stock markets this time around as the shares of both Bharti and MTN have soared on Thursday, after they abandoned an alliance that makes business sense now, more than ever. The two companies have the chance of course to revive the talks later but without the coming together of several factors that too seems unlikely to go anywhere; even though the first cut remarks have blamed the current failure on the pace of regulatory changes.
It is also worth considering if the talks would have succeeded if dual listing were allowed by India?s finance ministry.
At heart of the Bharti MTN deal is the race to emerge at the top of the telecom markets in the emerging economies sweepstake. In the sweepstakes two markets are critical?India and Africa. The Indian and Chinese markets are mutually exclusive. So that leaves the African market as the prized catch.
Already the world?s largest telecom company Vodafone that established itself in Africa, Japan?s NTT DoCoMo too has moved in there and with Tata is ramping up its presence in the Indian market. Both China Mobile and China Unicom have pushed their presence in Europe and again Africa. The world it would seem is getting pretty limited for expansion.
In this cross continental sweep Bharti is about the only telecom leader that has not shown any inclination to expand overseas, till last year. The model it followed was based on targeting the white spots in the Indian market which made enormous sense as the nation went from one telecom milestone to the next. The 3G auctions would be the next chance for the company to stamp its pre-eminent position in the domestic market. In fact the abandonment of the MTN adventure can now give Sunil Mittal?s company the space it needs to bid aggressively for the 3G licences. This too will cost money and the Bharti war chest will come in handy here. The available dates for the 3G spectrum auction within this financial year was getting limited till last week as companies pursuing expansion plans were not sure they could cough up the sum needed ( Rs 3,500 crore of reserve price per bidder, per circle) to bid competitively. It is this perception that has driven up the price of Bharti shares on Thursday making it the best performer among all Sensex stocks. Analysts have already termed it a relief rally. They point to the fact that Bharti has underperformed the Sensex by 20%, since May 25 when the company announced it had renewed talks with MTN.
But this would still leave Bharti without any footprint outside India, an unusual situation for the world?s sixth largest telecom company. Here too, latest figures for subscriber addition released by the Telecom Regulatory Authority of India shows the rate of addition of new subscribers has eased off for Bharti, while both Vodafone and Reliance Communications have added at a faster clip to move their market share to 18% and 19% respectively. Bharti?s market share is unchanged at 32%.
In this picture, the tie-up with MTN makes enormous sense for Bharti. It makes sense for MTN too. The two companies have each crossed the 100 million customer base, this year itself?Bharti from within India and MTN from about 21 countries of which the two largest outside South Africa, its home base, are Nigeria and Iran.
Bharti can of course at this stage go for an organic growth in Africa and the Middle East but that would mean taking on each of the global giants including MTN in every market, the reverse of Alexander?s march. But it would be as bruising a battle as the Greek fellow faced. For MTN too the prospect of an organic expansion is limited. No wonder just a few hours after the announcements of the deal being jettisoned, analysts say the deal is neither dead nor buried.
The other aspect of the telecom sector is its technology. As each company establishes itself in any region, it asserts the right to impose its technological standard. This is reflected in the battle for switch from 2G to 3G and Wimax standards as this creates an entry barrier for new entrants. Not just Bharti and MTN, but all companies know this can scupper any expansion plans and hence they need to ramp up volumes substantially before the next technological thrust.
But obviously these are only proximate factors, showing the necessity but not making a compelling reason for the companies to come together. If that had been so, the deal would have been signed. The absence of permission to list the shares of both companies on the Johannesburg and Mumbai stock exchanges would not have halted the deal. Because at its core what would have been this year?s largest global cross-border deal is not really a coming together of the two companies but an acquisition. But none of them was sure who would have yielded control. As of now, Bharti holds most of the aces, including a bigger market, better access to banks and a more supportive government. Unless MTN recognises that, the deal is unlikely to be signed soon.
subhomoy.bhattacharjee@expressindia.com
