The Indian telecom sector is one of the most crowded telecom markets in the world with some states in India having as much as 9 telecom operators. As time moves on, some of these telecom operators will not have the resources to compete independently and will either exit the Indian telecom market or merge with others to gain scale.
The Indian telecom market operates at razor thin margins and scale is very important to continue operating in India profitably. In the current scenario only the top three telecom operators in India i.e Airtel, Vodafone and Idea are properly profitable along with solid customer additions.
Reliance is also profitable but is losing customers at a blistering rate and is cutting down on network investments which might help in short term for profitability but will negatively effect them in the long run.
Aircel is profitable in certain key circles such as Tamil Nadu, Jammu & Kashmir, Assam etc but overall remain unprofitable I assume. Tata Docomo, BSNL, MTNL, Telenor, MTS and Videocon all remain unprofitable for the most part.
As we move from voice to data, strong investments in 3G and 4G networks are required for surviving in the long run. With the government finally allowing spectrum trading and sharing rules, most operators will be able to merge or exit the telecom market. In this article I'll try to analyze and list down the various possible scenarios that can occur in the telecom market.
1. Loop Telecom - If you're from Mumbai and are reading this article I'm pretty sure you know about Loop Mobile. The telecom company once obtained a pan India license thanks to former telecom minister A.Raja but irregularities in allocation of spectrum lead to their license being cancelled in all of India except Mumbai. The license/spectrum they had in Mumbai was expiring on November 2014 and being auctioned in February 2014. Loop decided to not participate in the auction and as a result had to wind up operations in Mumbai following a failed attempt of selling their Mumbai operations to Airtel.
2. Videocon Telecom - Videocon telecom holds liberalized 1800 Mhz spectrum in 7 service areas namely
MP&CG
Punjab
Haryana
UP East
UP West
Gujarat
Bihar and Jharkhand.
Of all telecom operators in India Videocon has been very vocal of selling their telecom business. The company recently decided to split their operations in the seven different circles into seven different companies. The company plans on selling its 1800 Mhz spectrum to interested parties in all the circles except for Punjab which is EDIBTA positive. As per reports Videocon Telecom has held talks with Airtel, Idea, Vodafone and Reliance Jio regarding the sale. Amongst all operators in India Videocon telecom seems most likely to exit in the near term.
2. Telenor - Telenor doesn't seem to be in a mood to exit India anytime soon. The carrier's strategy of being Sabse Satsa has so far worked out only when it comes to voice but with data being the way forward the company needs a new strategy. The company as of today operates in a limited number of circles and has only 2G networks. 2G is becoming increasingly outdated and from what I hear Telenor's 2G hardly gets the job done. The company has said that it will opt for acquiring spectrum from other companies via spectrum trading and might as well participate in the 3G auction once DoT gets the defence to free up more spectrum in the 2100 Mhz spectrum. Whether the company participates in the upcoming 3G auction or gets spectrum from other companies remains to be seen but its worth noting that the company decided to not participate in the February 2015 spectrum auction when both 3G and 4G airwaves were being sold.
3. Rcom - Rcom has already signed infrastructure sharing deals with Rjio. As of recently the company has also applied for spectrum sharing with Rjio in 800 Mhz band in several circles of India. Rjio will use Rcom's network as a fall back for 2G and 3G while simultaneously Rcom gets access to Rjio's pan India 4G network. Rcom's moves during February 2015 spectrum auction also seem to be heavily influenced by Rjio where the company missed crucial 900 Mhz spectrum in several circles and rather opted to bid for 800 Mhz spectrum instead. Its widely believed that over the years Rcom and Rjio might end up merging into one single company. There's already a lot of collaboration between Rcom and Rjio and looking at Rcom's lack of investment in expansion of 3G network and dwindling subscriber base, its fully possible that Rcom might try to merge with Rjio as the latter has a robust 4G network all over India.
4. MTS - MTS has been one of the smallest operators in India. The company has been a pure play CDMA operator with a special focus on data and has already declared publicly its intention to merge with Rcom in a all stock deal. Although the deal hasn't been finalised yet its in advanced stages according to various reports. Rcom's acquisition of MTS, also seems to be influenced by Rjio. The theory goes somewhat like this -
During the 2010 spectrum auction when Infotel acquired pan India 2300 Mhz spectrum, Reliance immediately bought them with the aim of building a pan India 4G network, however the propogation characterisitics of 2300 Mhz band were poor and its coverage would not be spectacular. This led to Rjio bidding for 1800 Mhz band in the February 2014 auctions which has better propogation yet Rjio needed sub 1Ghz spectrum to truly acheive blanket coverage.
When it comes to Sub 1 Ghz coverage there are three bands in India. 900 Mhz band, 800 Mhz band and 700 Mhz band. 900 Mhz band was being used predominantly by Airtel, Vodafone, Idea for their 2G operations. Airtel, Vodafone and Idea weren't going to let go of their 900 Mhz spectrum since their entire network was based upon this spectrum plus circles where they had 900 Mhz spectrum were the most profitable for them. Rjio would have to spend a fortune were it to gain 900 Mhz spectrum from Airtel, Vodafone and Idea.
The 700 Mhz spectrum is a long way from being auctioned and even when its auctioned, Airtel, Vodafone and Idea would again want a huge chuck of it given the vast deployment of 4G on 700 Mhz band worldwide and accordingly the strong ecosystem built for it.
This leaves Rjio with the 800 Mhz spectrum and they have actively been trying to collect this spectrum as much as possible. They had bid for 800 Mhz spectrum in February 2015 auctions in several circles. They have signed a spectrum sharing deal with Rcom and Rcom has applied to liberalize its 800 Mhz holding which was allocated administratively to share it with Rjio. Combine this with the liberalized spectrum MTS holds and Rjio would soon be sitting on top of a lot of low band spectrum for very cheap rates.
5. Tata Docomo - Tata Docomo is also planning to exit the Indian telecom market. Docomo is already planning to sell its stake in the loss making joint venture. Tata's current chairman Cyrus Mistry is also wanting to exit the telecom business completely. Tata has just concluded a big sale in Viom to ATC and is also in the process of selling its data center business to interested parties. The most likely suitor for Tata Docomo has been Vodafone. Vodafone is no strager to acquisitions, in fact the formation of Vodafone itself involved a series of acquisition in several circles of India and grouping them under one company. After the sale of its stock in Verizon, Vodafone's rich with cash and being the second largest operator in India it is keenly interested in acquiring Tata Docomo for the dark fiber which the company holds across India.
6. Aircel - There have been several stories regarding Aircel. The first one was Aircel - Tata Docomo - MTS entering into a three way merger but that never materialised. As of recently there's a rumor that Aircel might be entering a merger with Rcom which is already trying to merge with MTS. So this again gives rise to a three way merger of Aircel - Rcom -MTS. The merger might make sense for certain reasons as mentioned below -
Both Rcom and Aircel are No.4 and No.5 players in the Indian telecom market, combining them will help them over take Idea and reach and equal footing with Vodafone at least in terms of raw subscriber base however it must be noted that a lot of Aircel and Reliance subscribers are inactive
They have a complementary 3G spectrum footprint which will help them cover a lot of India if not the whole of India
Aircel has also been rumored to sell its 4G spectrum to Airtel, now I maybe taking this a little too far but here's my theory. Assuming Aircel - Rcom - MTS end up merging into one entity and this one entitiy merges with Rjio in the years to come, the one obstacle would be spectrum especially spectrum in the 2300 Mhz band which Aircel posseses in a lot of circles. Selling this spectrum might help Aircel to merge with Rcom - MTS and this one entitiy to merge with Rjio in future. I know that this is highly presumptive and has high chances of not materializing at all.
7. BSNL - BSNL has been long rumored to merge with MTNL, regardless of whether this merger happens or not I'm least optimistic of the future of the Duo. Unless and until they cut their staff and change the management entirely there's nothing that this Duo can do, in fact merging them will only give rise to an entitiy with even more loss, even more headcount and even more debt, only positive to occur from this would be more revenue but what's the use of revenue if it can't help you generate profits. Since BSNL and MTNL don't operate in same circles, the possible synergies of the merger are also incredibly less.
8. Airtel - Airtel is currently the leading telecom operator in India. They have one of the most expansive spectrum portfolios in India and after the spectrum auction of February 2015 they have pan India 2G and 3G spectrum in all circles barring Kerala. The only thing Airtel's trying to do now is try to collect as much 2300 Mhz spectrum as possible to compete with Rjio and also because 2300 Mhz spectrum carries an attractive 1% spectrum usage fee/tax. The company has already acquired 2300 Mhz spectrum from Qualcomm and Augere. They are in talks with Aircel and might as well try to acquire spectrum from Tikona.
9. Vodafone - Vodafone's long been rumored to acquire Tata Docomo whether that materializes or not remains to be seen. The company as I said earlier is no stranger to acquisitions and they highly want the fiber Tata Docomo posseses. Talks between TTSL and Vodafone were once at advanced stages but broke apart because of differences on valuation. However its also said that Vodafone asked TTSL to improve its finances and reduce its debt following which Vodafone would acquire them.
10. Idea - Idea is the fastest growing pan India operator. The company has been snatching consumer and value market share from rivals at a steady clip for several years now. I'm not sure if Idea will acquire/merge with anybody since their organic growth is very high for them to acquire a debt ladden operator which would bring down their overall financials. They have managed to jump from No.6 to No.3 in a very short period.
Overall there are a lot of possibilities for acquisitions in Indian telecom sector. Some like MTS + Rcom, Rcom + Rjio are highly possible. Others like Aircel + Rcom or Tata Docomo + Vodafone are less possible. However one thing is clear, the current industry can't sustain 8 players profitably, a lot of these either have to merge or exit no matter what. Now when and how that happens remains to be seen.
The Indian telecom market operates at razor thin margins and scale is very important to continue operating in India profitably. In the current scenario only the top three telecom operators in India i.e Airtel, Vodafone and Idea are properly profitable along with solid customer additions.
Reliance is also profitable but is losing customers at a blistering rate and is cutting down on network investments which might help in short term for profitability but will negatively effect them in the long run.
Aircel is profitable in certain key circles such as Tamil Nadu, Jammu & Kashmir, Assam etc but overall remain unprofitable I assume. Tata Docomo, BSNL, MTNL, Telenor, MTS and Videocon all remain unprofitable for the most part.
As we move from voice to data, strong investments in 3G and 4G networks are required for surviving in the long run. With the government finally allowing spectrum trading and sharing rules, most operators will be able to merge or exit the telecom market. In this article I'll try to analyze and list down the various possible scenarios that can occur in the telecom market.
1. Loop Telecom - If you're from Mumbai and are reading this article I'm pretty sure you know about Loop Mobile. The telecom company once obtained a pan India license thanks to former telecom minister A.Raja but irregularities in allocation of spectrum lead to their license being cancelled in all of India except Mumbai. The license/spectrum they had in Mumbai was expiring on November 2014 and being auctioned in February 2014. Loop decided to not participate in the auction and as a result had to wind up operations in Mumbai following a failed attempt of selling their Mumbai operations to Airtel.
2. Videocon Telecom - Videocon telecom holds liberalized 1800 Mhz spectrum in 7 service areas namely
MP&CG
Punjab
Haryana
UP East
UP West
Gujarat
Bihar and Jharkhand.
Of all telecom operators in India Videocon has been very vocal of selling their telecom business. The company recently decided to split their operations in the seven different circles into seven different companies. The company plans on selling its 1800 Mhz spectrum to interested parties in all the circles except for Punjab which is EDIBTA positive. As per reports Videocon Telecom has held talks with Airtel, Idea, Vodafone and Reliance Jio regarding the sale. Amongst all operators in India Videocon telecom seems most likely to exit in the near term.
2. Telenor - Telenor doesn't seem to be in a mood to exit India anytime soon. The carrier's strategy of being Sabse Satsa has so far worked out only when it comes to voice but with data being the way forward the company needs a new strategy. The company as of today operates in a limited number of circles and has only 2G networks. 2G is becoming increasingly outdated and from what I hear Telenor's 2G hardly gets the job done. The company has said that it will opt for acquiring spectrum from other companies via spectrum trading and might as well participate in the 3G auction once DoT gets the defence to free up more spectrum in the 2100 Mhz spectrum. Whether the company participates in the upcoming 3G auction or gets spectrum from other companies remains to be seen but its worth noting that the company decided to not participate in the February 2015 spectrum auction when both 3G and 4G airwaves were being sold.
3. Rcom - Rcom has already signed infrastructure sharing deals with Rjio. As of recently the company has also applied for spectrum sharing with Rjio in 800 Mhz band in several circles of India. Rjio will use Rcom's network as a fall back for 2G and 3G while simultaneously Rcom gets access to Rjio's pan India 4G network. Rcom's moves during February 2015 spectrum auction also seem to be heavily influenced by Rjio where the company missed crucial 900 Mhz spectrum in several circles and rather opted to bid for 800 Mhz spectrum instead. Its widely believed that over the years Rcom and Rjio might end up merging into one single company. There's already a lot of collaboration between Rcom and Rjio and looking at Rcom's lack of investment in expansion of 3G network and dwindling subscriber base, its fully possible that Rcom might try to merge with Rjio as the latter has a robust 4G network all over India.
4. MTS - MTS has been one of the smallest operators in India. The company has been a pure play CDMA operator with a special focus on data and has already declared publicly its intention to merge with Rcom in a all stock deal. Although the deal hasn't been finalised yet its in advanced stages according to various reports. Rcom's acquisition of MTS, also seems to be influenced by Rjio. The theory goes somewhat like this -
During the 2010 spectrum auction when Infotel acquired pan India 2300 Mhz spectrum, Reliance immediately bought them with the aim of building a pan India 4G network, however the propogation characterisitics of 2300 Mhz band were poor and its coverage would not be spectacular. This led to Rjio bidding for 1800 Mhz band in the February 2014 auctions which has better propogation yet Rjio needed sub 1Ghz spectrum to truly acheive blanket coverage.
When it comes to Sub 1 Ghz coverage there are three bands in India. 900 Mhz band, 800 Mhz band and 700 Mhz band. 900 Mhz band was being used predominantly by Airtel, Vodafone, Idea for their 2G operations. Airtel, Vodafone and Idea weren't going to let go of their 900 Mhz spectrum since their entire network was based upon this spectrum plus circles where they had 900 Mhz spectrum were the most profitable for them. Rjio would have to spend a fortune were it to gain 900 Mhz spectrum from Airtel, Vodafone and Idea.
The 700 Mhz spectrum is a long way from being auctioned and even when its auctioned, Airtel, Vodafone and Idea would again want a huge chuck of it given the vast deployment of 4G on 700 Mhz band worldwide and accordingly the strong ecosystem built for it.
This leaves Rjio with the 800 Mhz spectrum and they have actively been trying to collect this spectrum as much as possible. They had bid for 800 Mhz spectrum in February 2015 auctions in several circles. They have signed a spectrum sharing deal with Rcom and Rcom has applied to liberalize its 800 Mhz holding which was allocated administratively to share it with Rjio. Combine this with the liberalized spectrum MTS holds and Rjio would soon be sitting on top of a lot of low band spectrum for very cheap rates.
5. Tata Docomo - Tata Docomo is also planning to exit the Indian telecom market. Docomo is already planning to sell its stake in the loss making joint venture. Tata's current chairman Cyrus Mistry is also wanting to exit the telecom business completely. Tata has just concluded a big sale in Viom to ATC and is also in the process of selling its data center business to interested parties. The most likely suitor for Tata Docomo has been Vodafone. Vodafone is no strager to acquisitions, in fact the formation of Vodafone itself involved a series of acquisition in several circles of India and grouping them under one company. After the sale of its stock in Verizon, Vodafone's rich with cash and being the second largest operator in India it is keenly interested in acquiring Tata Docomo for the dark fiber which the company holds across India.
6. Aircel - There have been several stories regarding Aircel. The first one was Aircel - Tata Docomo - MTS entering into a three way merger but that never materialised. As of recently there's a rumor that Aircel might be entering a merger with Rcom which is already trying to merge with MTS. So this again gives rise to a three way merger of Aircel - Rcom -MTS. The merger might make sense for certain reasons as mentioned below -
Both Rcom and Aircel are No.4 and No.5 players in the Indian telecom market, combining them will help them over take Idea and reach and equal footing with Vodafone at least in terms of raw subscriber base however it must be noted that a lot of Aircel and Reliance subscribers are inactive
They have a complementary 3G spectrum footprint which will help them cover a lot of India if not the whole of India
Aircel has also been rumored to sell its 4G spectrum to Airtel, now I maybe taking this a little too far but here's my theory. Assuming Aircel - Rcom - MTS end up merging into one entity and this one entitiy merges with Rjio in the years to come, the one obstacle would be spectrum especially spectrum in the 2300 Mhz band which Aircel posseses in a lot of circles. Selling this spectrum might help Aircel to merge with Rcom - MTS and this one entitiy to merge with Rjio in future. I know that this is highly presumptive and has high chances of not materializing at all.
7. BSNL - BSNL has been long rumored to merge with MTNL, regardless of whether this merger happens or not I'm least optimistic of the future of the Duo. Unless and until they cut their staff and change the management entirely there's nothing that this Duo can do, in fact merging them will only give rise to an entitiy with even more loss, even more headcount and even more debt, only positive to occur from this would be more revenue but what's the use of revenue if it can't help you generate profits. Since BSNL and MTNL don't operate in same circles, the possible synergies of the merger are also incredibly less.
8. Airtel - Airtel is currently the leading telecom operator in India. They have one of the most expansive spectrum portfolios in India and after the spectrum auction of February 2015 they have pan India 2G and 3G spectrum in all circles barring Kerala. The only thing Airtel's trying to do now is try to collect as much 2300 Mhz spectrum as possible to compete with Rjio and also because 2300 Mhz spectrum carries an attractive 1% spectrum usage fee/tax. The company has already acquired 2300 Mhz spectrum from Qualcomm and Augere. They are in talks with Aircel and might as well try to acquire spectrum from Tikona.
9. Vodafone - Vodafone's long been rumored to acquire Tata Docomo whether that materializes or not remains to be seen. The company as I said earlier is no stranger to acquisitions and they highly want the fiber Tata Docomo posseses. Talks between TTSL and Vodafone were once at advanced stages but broke apart because of differences on valuation. However its also said that Vodafone asked TTSL to improve its finances and reduce its debt following which Vodafone would acquire them.
10. Idea - Idea is the fastest growing pan India operator. The company has been snatching consumer and value market share from rivals at a steady clip for several years now. I'm not sure if Idea will acquire/merge with anybody since their organic growth is very high for them to acquire a debt ladden operator which would bring down their overall financials. They have managed to jump from No.6 to No.3 in a very short period.
Overall there are a lot of possibilities for acquisitions in Indian telecom sector. Some like MTS + Rcom, Rcom + Rjio are highly possible. Others like Aircel + Rcom or Tata Docomo + Vodafone are less possible. However one thing is clear, the current industry can't sustain 8 players profitably, a lot of these either have to merge or exit no matter what. Now when and how that happens remains to be seen.
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