New Delhi: From the barrio of Bharti Airtel, the Rs 300 crore it has spent (outside of debt) to buy out Loop Mobile’s 3 million customers in Mumbai is literally a steal. Bharti’s largest market is Delhi as of now but by way of this acquisition, it will also go on to become the largest mobile phone service provider in Mumbai. Not only will it gain in terms of subscriber numbers, Bharti gets two additional benefits for it gets to buy assets like tower and Loop retail stores and also gets those clienteles which are loyal and known to be high ARPU (average revenue per user) patrons.
Bharti has paid Rs 700 crore for the deal, of which Rs 400 crore is the debt of Loop which it will acquire along with the assets. So fundamentally, Bharti has paid only Rs 300 crore for acquiring customers and cell sites.
“This is acquisition of an asset without specturm. Had the business (of Loop) been bought with, let’s say, 10 years of spectrum remaining, then Loop would have been valued at double the current valuation,” held an analyst from a prominent brokerage house.
The acquisition of Loop however will not give Bharti any spectrum since Loop’s 5 MHz of spectrum in the 900 MHz band will lapse in November this year.
The Query which transpires is – So why is this deal a steal for Bharti? Analysts approximate that- had the country’s largest mobile service provider set about creating assets and acquiring over three million new customers from scratch in a highly competitive circle like Mumbai, it would have spent Rs 400-500 crore in doing so. They provided convincing math for this analysis- acquirinng 3.2 million new customers would cost Bharti anywhere between Rs 200-300 crore; acquiring 2,000 cell sites another Rs 230-240 crore while buying own towers would have cost Bharti another Rs 60-70 crore.
“Anywhere between Rs 400-500 crore would have been the spending for Bharti, if it had to acquire customers and assets from scratch. This deal is therefore done at a very good valuation for both parties. Bharti got everything cheap while Loop promoters get Rs 300 crore,” alleged the same analyst.
After this acquisition, the fight for high ARPU customers in Mumbai will strengthen between Bharti and Vodafone. After the spectrum acquisition in the recently concluded auctions, Bharti will have 5 MHz of the highly efficient 900 MHz spectrum; Vodafone has more than double at 11 MHz whereas Idea Cellular has nothing in this band.
A top official of an incumbent telco which is in fierce competition with Bharti in Delhi said that with the acquisition of Loop, there would be “less competition” in the Mumbai market. This official also pointed out that Loop’s existing patrons now have the option of porting out of Bharti’s network if they so decide upon.
Bharti goes on to become the uncrowned monarch of Mumbai after this deal with more than 7 million customers, pushing Vodafone to the second spot with a little over 6.9 million users at the end of November. Mumbai and Delhi are the two most lucrative markets for premium data services in the country, and also have the highest revenue-generating customers.
In Mumbai, currently Bharti has spectrum in almost every available band – 900 MHz, 1800 MHz, 2100 MHz and 2300 MHz. It is sure to unleash a data war, since the telecom battles in the near future are anyway going to be fought over data, not voice. Not just Bharti, all other incumbent telcos are anyway preparing for a scenario when Reliance Jio Infocomm launches services, likely later this year, and unleashes a dreaded price war in the already bruised telecom industry.
In a statement announcing the deal, Bharti said Loop will undergo seamless integration once definitive agreements are signed, and is subject to regulatory and statutory approvals. This 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 4000 cell sites across Mumbai. It will also offer subscribers exclusive retail reach with 220 outlets.
Only one question stands here as to What happens to the international arbitration proceedings which Loop has initiated against the Indian Government previous year, that is, alleging wrongdoing in taking away its licence?