Bharti Group ready for big UK play with BT stake purchase, say analysts

Bharti Airtel chairman Sunil Mittal.

Bharti Enterprise's decision to acquire a 24.5 percent stake in BT Group Plc from its top shareholder, Altice UK, is a stepping stone towards a bigger play in the United Kingdom and highlights its growing global ambitions, analysts said on August 12.

Earlier in the day, Bharti Global, the international investment arm of Bharti Enterprises, announced the acquisition, which makes it the largest shareholder in BT Group.

“The Indian telecom market is now stabilising, and companies are looking to grow by looking at opportunities in other markets. They want to bring synergies as the market becomes global. This could be a more expansionist move than a direct focus on the UK market yet,” said Mahesh Uppal, director of Com First (India). He has been tracking Bharti for over 25 years.

In the initial phase, the 24.5 percent stake will help Sunil Bharti Mittal’s group to adopt BT’s operational processes, which it can implement in India and Africa, the telco’s biggest market outside the home country.

Bharti Enterprises could also gain access to BT’s enterprise clients, potentially converting them into future customers for OneWeb, market, experts said.

Eutelsat OneWeb is a broadband satellite internet service in which Bharti Enterprises is the largest shareholder with a 21.2 percent stake.

Uppal said that as the largest shareholder in OneWeb, the company would be comfortable with regulations in the UK, so it would be natural for it to invest. “The BT move is part of their international expansion strategy,” he said.

At the current market price, the 24.5 percent stake is valued at Rs 31,850 crore (roughly $4 billion), making it one of the biggest outbound deals struck by an Indian company.

Bharti Airtel's market capitalisation is around Rs 8.26 lakh crore, way above BT Group's Rs 1.39 lakh crore. This transaction will make Bharti Global the largest shareholder in BT Group.

Bigger global play

Ashwinder Sethi, partner at Analysys Mason, told Moneycontrol that operators are looking at opportunities in the broader Asia-Pacific market. There is an increasing trend to look at more evolved and mature markets.

“Etisalat and Saudi Telecom Company are looking for European opportunities. Jio had also looked at the T-Mobile opportunity,” he said.

Sethi said the situation is improving for Indian telcos. They have reasonable cash after the 5G rollout and are looking for investment opportunities. “For Bharti, this could be an opportunity to learn the best practices of BT and bring it to Africa and India,” Sethi said.

A role reversal

Bharti Enterprises said initially, it would take a 9.99 percent stake before seeking to acquire the remaining 14.51 percent after regulatory approvals, including voluntarily applying for clearance under the UK National Security and Investment Act.

The two groups have a long relationship, which began in 1997 after the UK firm acquired a 21 percent stake in Bharti Airtel.

According to the Mittal-led group, the investment will further help create "new synergies in the telecom sector between both countries in AI and 5G R&D and core engineering, amongst other things".

Shiv Putcha, founder and principal analyst at Mandala Insights, said the BT deal could give Bharti the much-needed exposure on the enterprise front for future growth. It would give the company access not just to BT’s product line and processes but also to its enterprise customers.

“These enterprise customers of BT would not just be relevant to Airtel’s global enterprise business but to OneWeb as well. These customers could look at leaving satcom technology wherein OneWeb would be the right fit,” Putcha said.

Neil Shah, partner at Counterpoint Research, said Bharti's investment would catalyse BT to offer a fully fixed-mobile convergence (FMC) play more competitively and potentially return value to Bharti in the longer term.

“This comes at a great time for BT with Bharti, which will become one of its largest investors and one of the largest telcos in the world, to shower any experience or help to help BT lead in the heated-up FMC battle with Virgin Media O2 (VMO2) in the UK,” Shah added.

FMC encompasses a range of services, including fixed wireless access, 5G mobile and convergence offerings such as enterprise solutions, content, and advertising.

“...over the last three decades, the tables have turned. Indian tech companies are now looking to invest in the UK to forge a tighter relationship with global tech companies and help those companies drive technology transformations,” Shah said.

The Bharti Airtel stock ended at Rs 1,463.85 on the National Stock Exchange, down 0.017 percent from the previous close.