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Bharti Airtel set to acquire Loop Mobile in a Rs 700-crore deal


19 May 2013
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MUMBAI: Bharti Airtel is set to acquire Loop Mobile in a Rs 700-crore deal that may be announced as early as this week in what will be the first consolidation move in the country's telecom industry since 2008, taking India's biggest operator to the top spot in Mumbai, three people involved in the deal told ET.

The deal will be via a slump sale, in which one or more undertakings are transferred for a lump sum, without values being assigned to individual assets and liabilities, the three people said. Kotak Mahindra Investment Bank is the sole advisor for the transaction, running the sale process, they said. There is no banker involved on behalf of Bharti Airtel.

As part of the deal, Bharti Airtel will get Loop's 3 million subscribers, about 400 telecom towers, optic fibre connecting the towers, and electronic equipment on which the Loop's network currently runs, they said. Loop's subscribers will thus continue to get uninterrupted services despite the company's licence expiring in September. About a third of Loop customers are highly valued post-paid subscribers, who generate higher revenues than the pre-paid ones that dominate the country's telecom user base. The company generates among the highest average revenue per user (ARPU) per month, analysts said.

After the acquisition, Bharti Airtel will have more than 7.1 million users in Mumbai, pushing Vodafone India, which had over 6.9 million users at the end of November, to the second spot in the city.

Mumbai and Delhi are the two most lucrative markets for premium data services in the country, and also have the highest revenue-generating customers. Bharti Airtel is already the leader in Delhi. The deal will be the first since Idea Cellular picked up a majority stake in Spice in 2008.

The development comes as Bharti Airtel, Vodafone India and Idea Cellular fight for lucrative data customers. The incumbent telecom companies are also preparing for a bruising round of competition when Mukesh Ambani-owned Reliance Jio Infocomm launches services, likely later this year.

As competition in the voice market abates, operators are battling it out for data customers on price and quality. Telecom companies are betting on future data revenue from customers using mobile phones and tablets to connect to the Internet.

Bharti Airtel beat out competition from private equity investor Carlyle and rival Vodafone India, one of the people said. Loop's owners, Dubai-based IP Khaitan and family, will exit the telecom sector with this deal. Mauritius-registered Khaitan Holdings Mauritius holds 26.95% stake in Loop while the rest is owned by some members of the Khaitan family.

The Loop deal has been in the making for many years but has been hampered by various issues. This includes an ownership arbitration case against Hutchison, whose India assets were acquired by Vodafone. It was also dogged by a controversy over whether the business was actually owned by the Essar Group, which owned significant interests in Hutchison and Vodafone until 2011.

In September, ET reported that Bharti Airtel had emerged the front-runner to buy Loop and was awaiting the outcome of the spectrum auction that ended last week. The deal has been in the works for the past nine months, said another of the three people.

Official spokespersons of both companies declined comment. In the bandwidth sale that ended last week, Bharti Airtel bid Rs 2,815 crore to emerge the only winner aside from incumbent Vodafone to win spectrum in the cost-efficient and more penetrative 900 Mhz band that was being used by Loop in Mumbai.

Loop, which has 8 Mhz of airwaves in the 900 Mhz band, had chosen not to participate in the auction in anticipation of the deal, the people said. In the auction, Vodafone won 11 Mhz of bandwidth, with Bharti Airtel getting 5 Mhz of the 16 Mhz on offer. As a result of having liberalised 5 Mhz of continuous spectrum in Mumbai now, Bharti Airtel can also offer pricey 3G services to Loop customers with better quality than the current 3G service it offers on the 2100 Mhz band since 900 MHz airwaves are more efficient.

Loop is present only in Mumbai and is the city's oldest operator, having started operations in 1995 as BPL Mobile. The company still retains some customers from that time. Khaitan Holdings Group took ownership control of Loop in 2005. The company was among the nine mobile phone operators whose licences were cancelled by the Supreme Court in 2012, citing irregularities in the grant of the permits in 2008. The current owners of Loop have slapped a $1.4-billion notice on the government, seeking international arbitration while arguing that India was not able to protect investments made in the mobile phone operator since 2008.

Loop's licence in Mumbai ends in September this year. Since Bharti Airtel has already bought Loop's airwaves through a government-run auction, any regulatory uncertainty over transfer of spectrum has been eliminated, one of the people cited above said. Under the current rules, to get spectrum during an acquisition, the buyer has to pay market price for the airwaves to the government — as in an auction — making most telecom deals expensive and unviable.

The transaction also conforms to the new M&A rules that limit the market share of a merged entity in a circle to 50%, with a spectrum holding limit in a circle as well.

Source Bharti Airtel set to acquire Loop Mobile in a Rs 700-crore deal - The Economic Times on Mobile
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