The Indian telecommunication industry is one of the fastest growing in the world. Government policies and regulated framework implemented by Telecom Regulatory Authority of India (TRAI) have provided a conducive environment for service providers. This has made sector more competitive, While enhancing the accessibility of telecommunication service at affordable tariff to the consumers. In the last two decades, the Indian Telecom Sector and mobile telephony in particular has caught the imagination of India. Driven by 3G and 4G services, it is expected that there is huge growth in India in 2016-17,supported by India ambitious US$ 1.1 billion Smart City program.
Merger and acquisitions (M&A) have been one of the defining factors that have impacted the Indian telecommunications industry over the years. Though M&As haven’t been a regular feature off late, due mainly to regulations and high debt levels of potential telecoms, ENINCON takes a look at the major deals that have happened over time.
Some Key investment in Telecom sector in India
Major Merger & Acquisition in Telecom Sector
Government Initiatives support Merger & Acquisition in Telecom Sector
- The Indian government’s newly announced approval for spectrum trading and sharing is likely to push industry consolidation further, reduce regulatory uncertainty and ease network congestion. The department of telecommunication (DOT) has agreed to the defense ministry’s demands for a defense band and so-called defense interest zone, result will free up 3G telecom spectrum for at least 3 carriers.
- Dot has planned to frame a separate exit policy for the country’s telecom sector that will allow companies to leave the business without losing out on the value of the assets.
Industry shape after approval
- New rules are credit positive for the fourth-largest Telco – Reliance Communications Limited which can now reduce leverage through monetizing its under-utilized pan-India 800MHz spectrum.
- The top-three telcos, including market leader Bharti Airtel Limited, have increased their combined revenue market share to 73%. These companies may further consolidate market share by acquiring additional spectrum from smaller telcos, de-congest their network, and support their fast-growing 3G/4G services. Furthermore, their ability to trade spectrum may curtail excessive bidding in future spectrum auctions.
- Spectrum trading coupled with sharing will spur consolidation as it provides an exit route to smaller loss-making telcos which have struggled to generate positive operating cash flows. Smaller telcos – including Tata Telecom, Videocon Telecom and Aircel Limited – make operating losses, are struggling to gain market share, and are saddled with high debt. These businesses could trade their under-utilized spectrum assets with larger telcos in the loss-making Indian circles to focus only on profitable circles. The regulator has divided India into 22 telecom circles depending on demography.
Industry future outlook
- Loss-making telcos — Videocon, Aircel, Tata – may exit ,weaker unprofitable telcos including Videocon, Aircel and Tata could exit the industry as they make operating losses and lack key spectrum assets and financial flexibility to invest in data networks and five to six operators will emerge from the industry shake-out.
- We expect blended monthly ARPU to fall by 5-6% to around Rs 160 (2015: Rs 170) due to a decline in data tariffs, which will more than offset the rise in data usage,” it said.
- Jio is likely to launch its cheaper and faster 4G-focussed data services in Q1 of 2016 having invested about $14 billion partly to acquire 800 MHz spectrum in 10 circles and higher-bandwidth spectrum of 2,300MHz/ 1800MHz in 22 circles.
- It expect industry revenue to grow by low single-digits (2015: 9%), driven solely by data services as voice matures and subscriber growth slows.
- Data’s contribution to revenue will rise to around 25-27% (2015: 18-20%) as data traffic will double – aided by the proliferation of cheaper Smartphone, lower data tariffs and improving content availability.
- In 2016 industry capex/revenue could rise to 19-20% (2015: 18%) as companies invest to meet the challenges of fast-growing data traffic and a new competitor in Jio.
- The top-four – Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications — are likely to raise revenue market share to 80% (2015: 77%) as weaker ones exit. These are likely to acquire spectrum, from smaller loss-making telcos, to unclog their spectrum-starved network.
- The state-owned telcos – including Bharat Sanchar Nigam Limited and Mahanagar Telephone Nigam Limited – will benefit as they own a large chunk of the most-efficient – but under-utilized – 900MHz spectrum which can be traded to boost cash. These companies also make operating losses as employee costs are 50% of revenue. Furthermore, they have high debt, which was taken on to fund the acquisition of spectrum reserved for them by government.
India will merge as a leading player in the virtual world by having 700 million internet users of the 4.7 billion global user by 2025.With the government favorable regulation and 4G services hitting the market, rapid growth is expected in the Indian telecommunication sector in Surveillance, remote monitoring of ATM machine, Grid energy could eventually facilitate optimization of resources.