The telecom sector is witnessing a consolidation wave: the latest companies to join hands being Bharti Airtel, which will be merging itself with Tata Tele's consumer mobile business.
With Idea-Vodafone and Aircel-Telenor coming together, this is the third merger this year in this sector.
Will consolidation prove beneficial for the sector? According to a CLSA report, the answer is yes. "The accelerating consolidation in the telecom industry will benefit top operators," the report said.
The ongoing wave of consolidation presents the top operations with an opportunity to outpace the sector growth and improve share and profitability, the report added.
The report also hints that the telecom sector will see a transition to a four-player market as many small players are making an exit because of an uncertain future in this space.
A look at the exit of small players validates the point. Reliance Communications, which is reeling under a debt burden of about Rs 46,000 crore, recently called off merger talks with Aircel, citing "legal and regulatory" delays.
The two had signed binding agreements in September 2016 for the merger of their mobile business.
Tata Tele, Reliance Communications, Aircel, Telenor and Sistema form 20 percent of sector revenues, the report highlighted, adding that any potential exits by the players could open up a significant market share shifts.
In case of individual companies, it believes that Bharti Airtel, Vodafone-Idea Cellular and Reliance Jio could, combined, account for over 90 percent of industry’s revenues.
What are the advantages that Bharti Airtel and Tata Teleservices will see post-merger?
Airtel-Tata Tele's merger will bolster the former's spectrum pool with additional spectrum in the 1,800, 2,100 and 850 MHz bands, all widely used for 4G.
The transaction will also provide Bharti Airtel the right to use Tata’s existing fibre network.
Through the deal Bharti has the potential to tap nearly 40 million Tata Tele customers. Although, experts also point out it may be a tough task to retain all the customers as they tend to drop out of a network as ownership or brand changes.
Telecom industry expert Nitin Sood also pointed out that Tata Tele would have gone through the deal despite any cash consideration since just shutting down the business would not have augured well on the brand image and would have left thousands of employees without employment. Through the merger the employees can be absorbed in the merged entity.
Commenting on the deal, N Chandrasekaran, Chairman of Tata Sons said, “We believe today's agreement is the best and most optimal solution for the Tata Group and its stakeholders. Finding the right home for our longstanding customers and our employees has been the priority for us. We have evaluated multiple options and are pleased to have this agreement with Bharti,” .(Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd)