Posts Tagged ‘bharti airtel’

MTN-Bharti : a long winding road from India to South Africa

bharti-airtel-mtn-mergerIndia’s Bharti Airtel & South African operator MTN returned to the bargaining table this week, over a merger that could create a $20 billion mobile giant. The potential deal is attractive for both parties & if successful, would create a leading telecommunications service provider group aligning Bharti’s market leading Indian business with MTN’s market leading African and Middle Eastern operations. Combined operations would result in the group enjoying leading positions in three of the fastest growing wireless emerging markets ; India, Africa & the Middle East, with no overlapping footprint & subscriber base of circa 200 million.

Under the terms of the deal Bharti will acquire a 49% shareholding in MTN, in turn MTN and its shareholders would acquire a 36% percent economic interest in Bharti, of which 25% would be held by MTN, the remainder held directly by MTN shareholders, with the long term goal being a fully merger. The two companies have agreed to continue exlusive discussions until the end of July, at which time any issues will be resolved or other potential partners will be engaged.

Sunil Bharti Mittal, Chairman and Managing Director of Bharti, said “We are delighted at the prospect of developing a partnership with MTN to create an emerging market telecom powerhouse. Both companies would stand to gain significant benefits from sharing each other’s best practices in addition to savings emanating from enhanced scale. We see real power in the combination and we will work hard to unleash it for all our shareholders.”

“The rationale for this potential transaction between MTN and Bharti is highly compelling,” said Phuthuma Nhleko, CEO of MTN. “We are excited at the prospect of teaming up with Bharti, India’s number one wireless operator and one of the most strongly capitalised players amongst its emerging market peer group. This would create a highly visible commercial partnership between South Africa and India,”

Bharti & MTN have been here before, almost exactly a year ago. Previous talks were torpedoed by a lack of clear understanding on control between the two companies. At the last minute, MTN proposed a different structure where Bharti was to become a subsidiary of MTN. Bharti retreated from the deal on the basis that it felt MTNs position was a way of gaining indirect control of the combined entity, which would have compromised the minority shareholders of Bharti. This time round it has been made clear from the start that Bharti will be the primary vehicle for both Bharti and MTN to pursue further expansion in India and Asia while MTN would be the primary vehicle for both Bharti and MTN to pursue further expansion in Africa and the Middle East. Most importantly, Bharti would have substantial participatory and governance rights in MTN enabling it to fully consolidate the accounts of MTN.

When this was announced earlier this week, I decided to hold off on posting, as I wanted to see what would forthcoming once the dust had settled & also to get a better feel for some of the more convoluted relationships involved. One of the potential major hurdles to this deal from my perspective was the stance of Singapore Telecom (SingTel) which owns a 30% stake in Bharti Airtel. Bloomberg reported that SingTel would end up with a diluted position of 20% at the end of any full merger between the two. However it would seem that this could be offset by synergies across all of the combined networks of Bharti, MTN & SingTel. In addition to its strong domestic business, SingTel owns Australian carrier SingTel Optus & holds significant stakes in carriers in Bangladesh, Indonesia, Pakistan, Thailand, and the Philippines, commanding upwards of 290 million subscribers themselves. In the same Bloomberg report, SingTel spokesman Peter Heng states that “SingTel will remain a significant shareholder and strategic partner in Bharti post any successful transaction. We will continue to equity account for Bharti, in its enlarged form post the transaction if this is successful.”

Another potential challenge that was aired, is opposition by minority shareholders in MTN, however it has been reported today that the Mikati family which owns a 10% stake in MTN via the M1 Group, has said it will back the deal. The majority shareholder in MTN is South Africa’s state pension fund PIC, with a holding of 13.5%, to date there has been no statement from them. Other minority shareholders of MTN include Allan Gray, Polaris, Coronation and Stanlib, it would seem that these companies are not so bullish on the deal, at least not until further details come clear.

The South African press also gave some weight to the position of the highly politicised trade union federation COSATU (Congress of South African Trade Unions) which recently tried to scupper the full takeover of Telkom’s stake in Vodacom by Vodafone. However, COSATU spokesman, Mr Patrick Craven, has said the MTN deal was a different situation to that of the national carrier ;  “Telkom has always been 50% owned by the public & the move was part of our policy agenda against privatisation. MTN has always been a private company”

So it would seem that conditions are favourable to the potential transaction going forward, which would bring to fruition a long held ambition for Bharti to move into Africa, which remains the most underdeveloped of emerging markets regards telecoms. By leveraging across the combined networks of Bharti Airtel, MTN, SingTel & the Bridge Alliance (11 major operatots in Asia-Pac), the new Bharti-MTN will become a major powerhouse & definitely a very attractive investment for those involved in Global & Emerging Markets.

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DoComo looks to India for growth

ntt-docomo-logoJapan’s NTT DoCoMo (NYSE – DCM) has been  struggling with sales at home, so it’s now betting on the Indian mobile market market by acquiring a 26% stake in Tata Teleservices. Mobile sales in Japan have now become stagnant, with a penetration of roughly 82% of the population (127M) carrying a mobile handset, carriers are now looking abroad for growth.

Compared to Japan, the technology deployed in India is noweher near as advanced or rich, but India is the world’s fastest-growing mobile market, adding as many as 9 million new customers a month. That’s why DoCoMo, the largest Japanese cellular operator, on Nov. 12 announced it is picking up a 26% stake, worth $2.7 billion, in Tata Teleservices, which is the 6th largest player in India.

The Indian market is very fragmented with mobile operators working in 19 identifiable circles. Each zone is allowed to have multiple private operators (earlier it was 2 private + BSNL/MTNL, subsequently it was changed to 3 private + BSNL/MTNL in GSM 900/1800, now each zone has 4-5 operators including BSNL/MTNL in GSM, and 2 private + BSNL/MTNL in CDMA).

DoCoMo expects there’s plenty more room to grow, too. India has just over 300 million subscribers, of which Tata Teleservices (which sells under the brand Tata IndiCom) has cornered about 29 million. With incomes rising sharply in urban India, and somewhat slower in rural India, estimates for growth in India’s market are pretty exuberant; Gartner Research, thinks that Indian mobile  subscribers could more than double, to 737 million, by 2012.

The DoCoMo-Tata deal is just the latest in a flurry of merger-and-acquisition activity involving India’s telecom industry. Vodafone paid $13.1 billion for a 67% stake in Hutchinson Essar last year, valuing each Hutch subscriber at more than $800. (That’s in a market where revenue per customer tends to be less than $10 a month, on average.)

DoCoMo officially started hunting for foreign acquisitions, even though its previous overseas forays had gone sour, resulting in as much as $15 billion in write-offs from one single investment in the 3G spectrum in the UK. In June, DoCoMo singled out emerging markets such as Bangladesh, Vietnam, Cambodia, Laos, and China as strategic battlegrounds. On June 16 it announced a $350 million deal to purchase 30% of TM International in Bangladesh.

The DoCoMo investment in Tata might get even larger. Because of regulatory requirements on the Indian side, DoCoMo will also co-float an open offer for at least 20% of the shares outstanding for a subsidiary, Tata Teleservices Maharashtra, which does business in the rapidly industrializing state of Maharashtra, home to the Indian financial capital of Mumbai. Any offer for 20% of TTML’s nearly 1.9 billion outstanding shares could cost more than $140 million, assuming the open offer does not include a premium.

If the open offer for the Maharashtrian subsidiary goes well—it is unclear what kind of premium Tata Sons and DoCoMo would offer—the two companies would face competition from both ends. Much larger players such as Bharti Airtel and Reliance Communications are keen to poach subscribers from smaller companies like Tata, but with an upcoming, multibillion-dollar 3G spectrum auction, and new licenses being handed out to foreign players, deep-pocketed new entrants will be making splashy entrances.

Canny play fro DoCoMo, which I believe will come off, purely as Reliance & Airtel are spending so much time competing, whilst also trying to stave off Vodafone Essar. Further information on the Indian mobile market can be read here at Consultant Value Added

UPDATE : State owned MTNL (Mahanagar Telephone Nigam Ltd) soft launched 3G serevices in Delhi last Thursday (12/12/08), Services will initially be restricted to the main business and political areas of the circle, with a commercial launch expected to follow in January 2009. During what it considers a ‘soft-launch’ the operator will offer free access to the new services in some of the central areas of Delhi. MTNL will offer the services under the ‘Jadoo’ brand name including internet, videoconferencing and gaming.

Expressing concern over slow pace of broadband growth, Prime Minister Manmohan Singh said, “I believe that 3G and Broadband Wireless Access will give a fillip to mobile broadband penetration. So far, India’s success in extending broadband has not been satisfactory. These services were launched in January 2005 and till now we have managed a very modest penetration. I expect that 3G will become the predominant platform on which we will be able to build and deliver upon India’s broadband objectives”. He also said that “3G and wireless broadband would bridge the much needed digital divide between the rural and urban India. For urban India, 3G and wireless broadband will offer convenience of mobility with the rich multimedia content of the internet”. MTNL, a service provider in Delhi and Mumbai, would extend the 3G services in Mumbai by the end of next month.

Source : Economic Times, India