Info-tech

Airtel to pay ₹4,428 cr for spectrum from Videocon

S Ronendra Singh New Delhi | Updated on January 20, 2018 Published on March 17, 2016

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Deal gives Airtel 4G-capable airwaves, Videocon a viable exit option

With Reliance Industries set to unleash its telecom juggernaut, nervous incumbent operators — Airtel and Idea Cellular — have taken their fight to grab more 4G spectrum from the auction room to the marketplace.

On Thursday, Airtel said it was buying spectrum from Videocon Telecommunications in six circles for ₹4,428 crore. In November, Idea Cellular had offered ₹3,310 crore to Videocon for buying airwaves in two of the same six circles. Videocon, however, called off the deal with Idea Cellular after agreeing to sell out to Airtel. The deal is a win-win for both Airtel and Videocon. For Airtel, this gives access to spectrum in the 1800 MHz band, which can be used to offer 4G data services. With this, Bharti will have 4G coverage in 19 circles (versus 15 earlier) out of a total of 22 circles.

“With this purchase, Bharti’s 3G plus 4G spectrum holding becomes the highest in the country. We believe Bharti is likely to be now even better placed to defend market share from Jio,” said analysts at Goldman Sachs.

For Videocon, the deal gives the promoters a viable exit option, which they have been looking for over the last two years.

“Although the valuation received from Airtel is lower than what Idea was willing to pay, Videocon promoters may have agreed to go with the former as this allows them to exit all six circles. Had they sold two circles to Idea, they would have found it challenging to find buyers for the other four regions,” said Prashant Singhal, Global Telecom Leader, EY.

If Idea had sealed the deal, it could have improved its 4G coverage in two circles. But the company can still hope to buy fresh spectrum in the upcoming auction, especially if the Department of Telecom is able to offer harmonised spectrum (airwaves that allow more efficient utilisation) in the 1800 MHz band.

In terms of valuation, Airtel is paying 1.7 times the reserve price for the next auction, which may appear to be a tad expensive, but removes the uncertainty that comes with the auction process.

“We think Airtel gunned for this spectrum despite the valuation because it might not have wanted to take the risk of clearing prices jumping significantly above the base price in the coming auctions. This also gives it the early-mover advantage to roll out 4G in more circles as auctions and subsequent awards could get delayed,” said GV Giri, Telecom Analyst at India Infoline.

Published on March 17, 2016
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