NEW DELHI: If Bharti Airtel’s proposed $23 to $29 billion merger with South African operator MTN goes through, India’s telecom M&A market will come of age either crossing or getting close to the $50 billion mark within a span of four years.
The telecom sector has seen greater M&A deals than any other segment in the country. Since 2005, 15 M&A deals have been struck, crossing a value of $25 billion. If Bharti pulls off a marriage with MTN, this number can cross $50 billion.
This also reveals that the size of Bharti-MTN deal will be roughly equal to or more than the last 15 telecom M&A deals in the country, though it is different since the transaction size is driven by share-swap rather than pure equity sale.
M&As in the Indian telecom sector started in the late 90s with companies like Bharti, Hutchison (now Vodafone), and Birla-AT&T (now Idea) starting to buy out smaller cellular operators with one or two circle operations. The first large M&A deal began with Tata Cellular merging with Birla-AT&T. This was followed by their acquisition of Escotel and RPG.
Bharti made multiple acquisitions in the late 90′s to 2002. Hutchison first acquired Facel in Gujarat, and then BPL, to expand its footprint in Maharashtra, Tamil Nadu and Kerala.
Of the 15 M&A deals struck since 2005, the largest was Vodafone 67% acquisition of Hutchison Essar for $13.66 billion which placed the enterprise value of Hutchison’s mobile footprint in India at $18.8 billion in 2007.
The second largest deal in terms of valuation was more recently, in December 2008, when NTT DoCoMo bought 26% of Tata Tele for $2.7 billion, representing an enterprise value of $10.38 billion for Tata Tele.
Many Indian companies have sold stakes on more than one occasion, and between 2005 and 2008 the valuations of these companies have steadily gone up. Tata Teleservices, which received a valuation of $10.38 billion from DoCoMo in 2008, was valued at a mere $1.27 billion by Temasec in August 2006 when it parted with 9.9% stake.
Similarly, Providence and TA Associates valued Idea Cellular at approximately $3.9 billion at 2006-end. Subsequently, in mid-2008, Telecom Malaysia gave Idea an enterprise value of $7.6 billion and acquired 14.9% stake.
Two of the most recent acquisitions include Telenor in Unitech and Etisalat in Swan neither of which had, at the time of the acquisition, any subscribers or operations in India. These deals were valued at $1.7 billion and $2 billion respectively.
It is clear that India is one of the most attractive markets representing huge growth potential over the next five years. DoT, in its latest spectrum report, has forecast one billion mobile consumers by 2014. This would mean an average addition of 10 million subscribers per month for the next five years.
It is also clear that no market in the world can sustain 12 to 13 operators per circle which is currently the case in India. It is expected that in line with the M&A deals over the last three years, further consolidation is on the cards in the near future. Most telecom experts forecast three to four national players with two or three regional operators over the next two to three years as average revenues per user decline, markets start to slowly saturate, and mobile telephony moves from the current land grab mentality to a fight for switching high-paying customers between competing mobile networks.
It is, however critical that for India to move to an efficient number of market players from the present overcrowding, the government immediately start to review its April 2008 telecom M&A guidelines which place severe restrictions on inter-circle mergers within the first three years.