Videocon spectrum deal shows Airtel’s need to boost its 4G spectrum: Fitch

Bharti Airtel’s plan to acquire 1800MHz spectrum in six Indian service areas, or “circles”, from smaller telco Videocon highlights Airtel’s need to boost its 4G spectrum amid pending competition from the entry of Reliance Jio, part of Reliance Industries, in 2H16, Fitch Ratings said in a note today.

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The acquisition will give Airtel the ability to offer 4G services in 19 of 22 circles compared with Jio, which has access to 4G spectrum in all 22 circles. Vodafone and Idea have 4G spectrum in five and 12 circles, respectively.

Airtel’s deal comes amid rapid growth in data services, as usage is doubling annually while data average revenue per user (ARPU) per month has jumped to over Rs 200 – higher than Voice’s Rs 137. The top four Indian telcos have been keen to acquire spectrum from smaller unprofitable firms since September 2015, when the regulator allowed spectrum trading among telcos.

Earlier, third-largest Idea Cellular showed interest in acquiring Videocon’s spectrum in two circles for Rs 33bn, but the deal collapsed as Bharti agreed to acquire the same. Airtel’s acquisition price of Rs 44bn is about 65% higher than the regulatory auction reserve price – adjusted for the residual life of 16 years – as the spectrum is contiguous to Airtel’s existing spectrum in 1800MHz. Bharti’s ‘BBB-‘ rating will remain intact with its FFO-adjusted net leverage (excluding deferred spectrum assets) about 2.0x post-transaction. It will fund the Rs 44.3bn (USD0.66bn) spectrum acquisition from the sale of operations in Burkina Faso and Sierra Leone to France’s Orange.