March 2, 2017 10:00 am JST

India's Bharti Airtel snaps up Telenor's local unit

Norwegian telecom's farewell underscores tough conditions in crowded market

KIRAN SHARMA, Nikkei staff writer

Bharti Airtel is the No. 1 player in India, with a market share of 26.1%. (Photo by Keiichiro Asahara)

NEW DELHI Bharti Airtel, India's largest telecom operator, has agreed to buy the Indian operations of Norway's Telenor, a move that will bolster its position in the face of stiff competition from Reliance Industries' newly launched wireless venture.

Headquartered in New Delhi, Bharti Airtel has operations in 17 countries across Asia and Africa. It says it had more than 368 million customers worldwide at the end of January.

Airtel announced the deal on Feb. 23, saying it will acquire Telenor India's operations in the country's seven densely populated areas with high growth potential -- Andhra Pradesh, Bihar, Maharashtra, Gujarat, eastern and western Uttar Pradesh and Assam. The acquisition, for an undisclosed sum, includes all of Telenor India's assets and clients.

"The decision to exit India has not been taken lightly. After thorough consideration, it is our view that the significant investments needed to secure Telenor India's future business on a stand-alone basis will not give an acceptable level of return," said Sigve Brekke, CEO of Telenor Group which has 214 million mobile subscribers in 13 markets across Scandinavia, Central and Eastern Europe, and Asia.

Telenor had 54 million subscribers in India at the end of December 2016, making it the eighth-largest of the country's 12 mobile operators. But its active-user rate was only 70%. That translates to 38 million customers, putting it in ninth place, with a market share of 4% in Asia's third-largest economy. India had 1.1 billion mobile subscribers and 988 million active users in December. Bharti Airtel is the No. 1 player, with a market share of 26.1%, or 258 million active users. Vodafone India and Idea Cellular followed with 19.6% (194 million active users) and 19.4% (192 million active users), respectively.

STRONG CHALLENGER The announcement came two days after Mukesh Ambani, Reliance Industries' billionaire chairman, declared that his company's telecom arm, Reliance Jio Infocomm, had exceeded the 100 million subscriber mark just 170 days after its launch, adding nearly seven customers every second.

The new entrant shook up the Indian telecom sector when it burst on to the scene with 4G broadband services on Sept. 5 last year, wooing customers with free voice calls and an introductory free data offer that forced existing players to slash charges and look for new partners. Reliance Jio Infocomm will start charging its customers from April 1 for data services, but at heavily discounted rates.

The fiercer competition has hit Airtel's bottom line. It reported a 55% year-on-year decline in net profit for the quarter ended Dec. 31. Meanwhile, U.K.-based Vodafone's India unit and Idea Cellular -- the second- and third-largest players -- are discussing merging their operations and are expected to announce a deal. Reliance Communications, part of Reliance Group, which is led by Mukesh's brother Anil Ambani, and unlisted telecom operator Aircel have already announced the merger of their wireless operations.

TELENOR'S STRUGGLE The announcement of Telenor's pullout from India underscores the Norwegian telecom company's difficulties cultivating Asian markets.

Telenor has been expanding aggressively in Asia since it entered the region in 1996 through Grameenphone, a joint venture with Grameen Bank, in Bangladesh. It now operates in six Asian countries. Roughly half of its revenue and more than 90% of its subscribers are from the region.

However, the company has been struggling in markets such as India, where competition from local players, often backed by powerful investors, is intensifying. In Thailand, its local unit, Total Access Communication, or Dtac, recently announced that it will not pay dividends for the 2016 business year, as its net profit fell by nearly half on the year to 2 billion baht ($57.2 million). This followed a 45% profit decline in 2015.

The company, which is now No. 2 in a market dominated by three players, was unable to secure additional 4G spectrum at auctions in 2015 and 2016. Its two main rivals -- Advanced Info Service, backed by Singapore's Temasek Holdings, and True Corp., part of billionaire Dhanin Chearavanont's Charoen Pokphand Group -- got the four slots that were up for grabs for a combined 232.55 billion baht.

Back in Norway, the state-owned company has been facing scrutiny for practices in Asia that are "in breach with Telenor's internal guidelines."

In Bangladesh, it sponsored a sporting event with connections to the country's army. At Dtac, site lease agreements were struck without sufficient documentation on land ownership. The agreements were made "according to common industrial practice in Thailand, but were not in line with Telenor's internal guidelines," the company said.

There has been conflict between the board and management over whether Brekke should step down, as he was the head of Asian operations at the time of the incidents. But the board concluded late last year that "he is the right person" to lead the company.

Nikkei staff writers Yukako Ono in Bangkok and Yuji Kuronuma in New Delhi contributed to this report.

Asia300

Reliance Industries Ltd.

India

Market(Ticker): BOM(500325)
Sector:
Industry:
Energy Minerals
Oil Refining/Marketing
Market cap(USD): 80,197M
Shares: 3,251.90M
Asia300

Total Access Communication Public Co., Ltd.

Thailand

Market(Ticker): BKK(DTAC)
Sector:
Industry:
Communications
Wireless Telecommunications
Market cap(USD): 3,797.30M
Shares: 2,367.81M
Asia300

Advanced Info Service Public Co., Ltd.

Thailand

Market(Ticker): BKK(ADVANC)
Sector:
Industry:
Communications
Wireless Telecommunications
Market cap(USD): 16,041.88M
Shares: 2,973.09M
Asia300

True Corp. Public Co., Ltd.

Thailand

Market(Ticker): BKK(TRUE)
Sector:
Industry:
Communications
Specialty Telecommunications
Market cap(USD): 5,251.29M
Shares: 33,368.19M
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