Vodafone Making A Call For Telenor’s India Business?

In the recently concluded spectrum auction in October, Vodafone India emerged as the top bidder by committing Rs 20,200 crore. The second largest telecommunications company in India focused on extending its fourth generation (4G) footprint in India, and by the end of the auction, increased its 4G reach to 17 circles from eight circles earlier, according to data provided by the Department of Telecommunications.

But even though its capacity to provide high speed 4G services has doubled, the company still lags behind peers, data compiled by BloombergQuint shows. Vodafone India still does not have any 4G footprint in five circles – Andhra Pradesh, Tamil Nadu and Chennai, Himachal Pradesh, Bihar, and Jammu and Kashmir, according to an ICICI Securities report.

In Maharashtra, it can provide 4G services only in the 2500 MHz band – in which it holds 20 MHz of spectrum – but not in the 1,800 MHz band. Globally, 1,800 MHz is the preferred band for 4G services to provide high-speed data.

The six circles mentioned above together account for 27 percent of Vodafone India’s total revenue, while its aggregate revenue market share in these six circles is in the range of 7 to 30 percent.

It could fill the gap in its 4G spectrum assets by acquiring Telenor India’s spectrum, Nitin Soni of Fitch Ratings said in a telephonic interview.

In a recent report, Fitch Ratings had said, “Weaker telecom companies such as Telenor India and Tata Teleservices could exit or do mergers and acquisitions to strengthen their competitive position, as they lack financial flexibility and 3G/4G spectrum assets.”

Telenor India did not participate in the latest spectrum auction, signalling a retreat from the Indian market. Sigve Brekke, chief executive office of Telenor, said in a conference call with investors that the company’s current spectrum position in India is “not sustainable” and it will look at long-term solutions to create value for shareholders.

In the third quarter of the current year, Telenor India posted a massive loss of approximately Rs 3,229 crore due to impairment of its licences.

The company began operations in India in December 2009 and currently holds 43.4 MHz of fully liberalised spectrum in the 1,800 MHz band in seven circles – Andhra Pradesh, Assam, Bihar, Gujarat, Maharashtra, Uttar Pradesh East and Uttar Pradesh West, valid till 2032/2034.

If Vodafone India were to acquire Telenor India’s existing spectrum, it would get 4G footprint in the 1,800 MHz band in three circles – Maharashtra, Andhra Pradesh and Bihar. These three circles contribute 16.1 percent of Vodafone India’s total revenue.

In the recently concluded spectrum auction, Vodafone India did not win any spectrum in the 1,800 MHz band in these three circles despite some unsold spectrum at the close of the auction.

For any potential acquisition, Vodafone India and Telenor India will have to take approvals from the Department of Telecommunications (DoT) and the Telecom Regulatory Authority of India (TRAI).

According to merger and acquisition (M&A) guidelines in the telecom sector, an M&A is allowed only if the percentage of adjusted gross revenue market share of the merged entity does not exceed 50 percent in any particular circle. The guidelines also specify that the entity should have less than 50 percent of spectrum in each band individually in addition to having less than 25 percent of the combined spectrum across all bands and all circles.

A potential acquisition of Telenor India by Vodafone India will not breach any of the above guidelines, according to BloombergQuint’s calculations.