Airtel planning to buy the Indian business of Telenor

Bharti Airtel is said to be in advanced talks with Telenor India as it looks forward to buying Telenor's India business in a deal that will involve taking on debt of Rs 1,500 crore while allowing India's biggest telecom company to add to its 4G spectrum and be better placed to take on Reliance Jio Infocomm.

"The talks are quite advanced. Airtel is just looking at taking over a part of Telenor India's debt while Telenor would need to take care of the balance loans," a person aware of the development told ET.

Sources said the development follows Telenor's inability to strike a deal with its rivals. Reluctant to take on debt, No. 3 Idea is believed to have offered equity but that didn't appeal to Norway's Telenor, which wants a complete exit from India.

Before that, Telenor had started talks with various players including Vodafone and was seeking around $1 billion for its spectrum, which has fallen in value over time. Based on the last spectrum auction, this is now pegged at about Rs 5,519 crore ($810 million).

Airtel, which had consolidated net debt of $12.23 billion (over Rs 83,000 crore) as of September, wouldn't want to increase this burden by too much, but 4G spectrum in seven circles is quite a lure, said the person cited above.

As per the annual report by Telenor, the company owes close to 2.4 billion Norwegian krone (Rs 1,900 crore) to the government in deferred spectrum payments, excluding any applicable penalties, and another 2.3 billion krone (Rs 1,800 crore) to financial institutions as debt. It has 4G bandwidth in the 1800 MHz band in the Uttar Pradesh (West), Uttar Pradesh (East), Bihar, Maharashtra, Andhra Pradesh, Assam and Gujarat circles, which cumulatively contribute 35% to Airtel's revenue.

Incidentally, Idea had in March pulled out of a deal to buy Videocon's spectrum in two circles. A day later, Airtel bought Videocon's airwaves in six circles. Bharti Airtel and Telenor declined to comment while Idea didn't respond to queries.

Telenor has marked down value of its India business by 6.3 billion krone (Rs 5,000) crore since beginning of 2016 - a Rs 4,000 crore writedown of the value of licences alone - and didn't participate in the October spectrum auctions, signaling its intent to exit a market where it has been making losses and struggled to expand operations.

Buying Telenor makes sense as spectrum harmonisation has made the smaller telco's airwaves more attractive. The Department of Telecommunications (DoT) has rejigged allocated frequencies so they are contiguous for operators as part of spectrum harmonisation. 5 Mhz of contiguous spectrum is needed for good quality 4G. Since all of Telenor's spectrum has been bought in auctions, airwaves have long validity and can be used for any technology. If it had been allotted, an acquirer would have to pay separately for the spectrum. Since there is 5 MHz or more in each of the seven circles - Andhra Pradesh, Bihar, Gujarat, Maharashtra, Uttar Pradesh (East and West) and Assam - Airtel can straight away use it all for 4G.

Telenor has nearly 54 million subscribers, and its seven circles account for nearly 45% of subscriber share and nearly 40% of industry revenue. "Telenor records nearly Rs 5,000 crore top line annually. Even if Airtel gets around Rs 4,000 crore top line addition (taking into account some users choosing another operator), it would still net an ebitda of 70-80% of that. Moreover, Telenor has recently upgraded its network, so, it's practically brand new," said an analyst at a foreign brokerage asking not to be named.