'Airtel's Videocon acquisition to boost 4G spectrum'

Bharti Airtel's plan to acquire spectrum in six circles from Videocon Telecom highlights its need to boost 4G radiowaves ahead of competition from the entry of Reliance Jio, Fitch Ratings said today.
Airtel will fund the Rs 4,428 crore spectrum acquisition from the sale of operations in Burkina Faso and Sierra Leone to France's Orange, it said.
Standard and Poor's Rating Services has also termed the acquisition to be in line with its expectations and retained the stable rating of the company.
"Bharti Airtel's plan to acquire 1800 MHz spectrum in six Indian service areas from smaller telco Videocon highlights Bharti's need to boost its 4G spectrum amid pending competition from the entry of Reliance Jio, part of Reliance Industries, in 2H16," Fitch Ratings said.

The ratings agency also retained 'BBB-' rating of the company. 'BBB' ratings indicate that expectations of default risk are currently low.
S&P said its financial projections for Bharti factor in spectrum acquisition of Rs 6,500 crore in fiscal 2017.

"This includes Bharti's acquisition of spectrum in the 1800 MHz band from Videocon for Rs 4,428 crore. We assume that the company will not actively bid for the 700 MHz spectrum, which the government might auction at a high price in fiscal 2017," S&P said.
S&P added that Bharti's revenue growth is likely to remain subdued at 2-4 per cent in fiscals 2017 and 2018.

"The acquisition will give Bharti the ability to offer 4G services in 19 of 22 circles compared with Jio, which has access to 4G spectrum in all 22 circles," Fitch Ratings said.
Vodafone and Idea have 4G spectrum in five and 12 circles, respectively.
Bharti Airtel's deal comes amid rapid growth in data services, as usage is doubling annually while data average revenue per user (ARPU) per month has jumped to over Rs 200, higher than voice ARPU of Rs 137.
"The top four Indian telcos have been keen to acquire spectrum from smaller unprofitable firms since September 2015, when the regulator allowed spectrum trading among telcos," it added.

The ratings agency said Bharti's ratings have moderate headroom, given its plan to sell non-core assets despite higher competition and capex requirements in India.
Bharti had announced plans earlier to invest USD 3
billion annually over the next three years to improve voice and data networks.
Earlier, third-largest Idea Cellular showed interest in acquiring Videocon's spectrum in two circles for Rs 3,310 crore, but the deal collapsed as Bharti agreed to acquire the same.
Fitch Ratings said Bharti's acquisition price of Rs 4,428 crore is about 65 per cent higher than the regulatory auction reserve price - adjusted for the residual life of 16 years - as the spectrum is contiguous to Bharti's existing spectrum in 1800MHz.

Fitch maintains a negative outlook on the Indian telecom industry for 2016 as it expects the credit profiles of the top-four telcos to come under pressure from tougher competition, larger capex requirements and debt-funded M&A.
The entry of Jio will intensify the competition. The industry blended tariff should fall by 5-6 per cent as Jio's entry will arrest the rise in data ARPU and as voice ARPU will continue to fall due to data cannibalisation.
"The Indian telco industry will continue to consolidate, and we expect five to six operators to emerge from the shake-out," it added.