India Telecom M&A: Thirteen into six might go

Recent and upcoming reforms in the Indian telecommunications market, particularly the liberalisation of M&A rules, are expected to result in considerable market consolidation.
In the first acquisition of one operator by another in six years, market leader Bharti Airtel is buying one of the smallest operators, Loop Telecom. Loop's three million customers and infrastructure are all in the key market of Mumbai.
Second ranked Vodafone India has taken advantage of the new regulations – permitting 100% foreign ownership of Indian subsidiaries – to get government permission to purchase the remaining 15% stake it doesn't control for $1.6 billion.
Vodafone is also allegedly in closed-door talks to possibly acquire Tata Teleservices, the country's fifth-ranked operator with about 90 million subscribers, which is jointly owned by an Indian conglomerate and Japanese mobile giant NTT DoCoMo.

However, Vodafone and its competitors are still wary of the local regulatory environment, and it is unlikely any firms will be taking much action before the results of the upcoming general elections are known in mid-May.

A new government may not rubber stamp promised, but not yet introduced, reforms such as free national roaming, spectrum sharing and spectrum trading. Operators also need to know when auctions for 700 MHz, 850 MHz, and more 2.1 GHz spectrum are going to be held before planning their strategies.

There are also ongoing disputes over back taxes and the retrospective spectrum usage fees being demanded by government.

If the new government is pro-liberalisation and proactive in the introduction of reforms, and if it is able to give private assurances to the heads of the major mobile operators that it will not spring any more nasty surprises, then market consolidation may begin in earnest in the second half of the year.

A major consolidation and liberalisation which the market has been waiting on for years is the merger of the state-owned firms MTNL, which operates only in Delhi and Mumbai, and BSNL, which covers the rest of the country. Between them they have 110 million mobile subscribers, 2G and 3G coverage of the whole country, and an excellent fixed-line and mobile infrastructure.

On the downside, they have a poor image and non-commercially minded, bureaucratic management. Merger and privatisation though could create a real force for the private sector players to fear.

The main candidates to acquire smaller rivals are:

• Bharti Airtel, with 200 million plus subscribers to its 2G, 3G, and now 4G services
• Vodafone, with about 163 million 2G and 3G subscribers
• Idea Cellular, with 153 million 2G and 3G subscribers
• Reliance Communications (RCom), with 110 million CDMA and GSM subscribers

If the Ambani brothers could put aside their differences and merge newcomer Reliance Jio's countrywide 4G potential with RCom’s 850 MHz, 1800 MHz and 2.1 GHz assets, it would create a formidable entity.

Attractive acquisition targets are Aircel, with 70 Million subscribers and 2G, 3G and 4G spectrum, and Russia's Sistema, with few subscribers but one of the world's largest CDMA EV-DO Rev B broadband wireless networks. Videocon will likely soon go the way of Loop. It is unclear whether Uninor, with its 40 million 2G subscribers, will be a fish or a shark in the upcoming M&A season. Its owner, Telenor Group, has demonstrated an appetite to continue moving forward in India.