Bharti Airtel, the country's largest telecom operator by revenue and subscriber base, on Tuesday entered into a strategic agreement with Loop Mobile which gives it access to high revenue earning subscribers in the lucrative Mumbai circle.
Under the agreement, Bharti Airtel would not take over the management and employees of the company but only its subscribers and assets such as towers and passive infrastructure.
Though the company did not disclose the value of the deal, sources said it's a Rs 700-crore deal which will see Bharti Airtel paying Rs 300 crore to Loop promoters, the Dubai-based Khaitan family, and take on Rs 400 crore of debt held by the company. The deal has been conducted on a slump sale basis, which means ascribing value on a lump sum basis without assigning value to individual assets and liabilities.
Since Loop Mobile, which had 8 Mhz in 900 Mhz spectrum band and 2 Mhz in 1,800 Mhz band, did not participate in the recently held auctions, its licence would not get renewed in November and the company would cease to provide mobile services. Therefore, the deal does not trigger the merger and acquisition norms of the department of telecommunications and would not require the transfer of licence.
Analysts are divided on the significance of the deal, with some saying it strengthens Bharti Airtel's subscriber base in Mumbai and others saying the company could have acquired the same by porting out the customers through an attractive scheme. Further, some say the integration of the technology and billing system of the two operators would also entail huge costs.
However, purely viewed on the subscriber base, the agreement would take Bharti Airtel to the top spot in Mumbai, with a combined subscriber base of 7.3 million, relegating Vodafone (with 7 million customers at the end of December) to the second spot. However, critics point out that the race for having higher user base made sense in the old days when spectrum was given on subscriber-linked criteria.
Loop offers GSM services in only the Mumbai circle and has 3 million subscribers with average revenue per user (ARPU) of around R200 — much higher than the industry average of about R109 and Bharti Airtel Airtel's ARPU of R167. However, Trai data reveals Loop has the lowest level of active subscribers in the industry at about 47%. This means that only about 1.4 million Loop subscribers regularly use the network to make calls or download websites.
As part of the deal, Bharti Airtel will also get control of around 400 telecom towers, optic fibre connecting the towers, and electronic equipment on which Loop's network currently runs.
Bharti Airtel has also bought 5Mhz of the total 8Mhz of 900 Mhz band spectrum that Loop had in Mumbai, during the February auctions, removing any regulatory uncertainty over transfer of spectrum. Moreover, the transaction conforms to the new M&A rules that limit the market share of a merged entity in a circle to 50%, with a spectrum holding limit in a circle as well.
Analysts added that with mobile operators fighting for lucrative data customers in metro circles, the deal is positive for Bharti Airtel as about a third of Loop customers are highly valued post-paid subscribers, who generate higher revenues than the pre-paid ones that dominate India's telecom user base. Bharti Airtel Airtel is already the leader in Delhi. The deal will be the first since Idea Cellular picked up a majority stake in Spice in 2008.
“The proposed transaction will bring together Loop Mobile’s 2G/EDGE enabled network supported by 2,500 plus cell sites, and Airtel’s 2G and 3G network supported by over 4,000 cell sites across Mumbai. It will offer subscribers the widest exclusive retail reach with 220 outlets that will enable best-in-class customer service,” Bharti Airtel said.