Telenor – Tata Teleservices Deal: Who Benefits?

There have been many reports suggesting a possible merger between Norwegian telecom service provider Telenor and Tata Teleservices. From a broken partnership to the cancellation of its licenses and from getting into new alliances to regaining permits at a premium, Telenor has been through a lot over the past year or so. If TTL and Telenor do manage to merge, what will the new alliance mean?

The Story of Telenor So Far

Telenor earlier operated in 13 circles and had to downscale its operations in four of these after the Supreme Court cancelled 122 licenses following the 2G Spectrum scam that came to light. Accordingly, Telenor was to lose its permit, effective January 2013.

On account of the downscaling that happened in its business in Karnataka, Orissa, Tamil Nadu and Kerala, Telenor had to go through immense financial pressure. In the first three quarters of 2012, Telenor’s India operations registered revenues of Rs 2850.17 crore and an operating loss of Rs 5726.82 crore. As compared to the corresponding period in the previous year, this translates into a 39.58 per cent rise in revenues and a 65.13 per cent higher loss.

The Supreme Court directed the government to allot new licenses and spectrum through auctions and Telenor spent Rs 4018 crore to secure spectrum license in 6 telecom circles in India. This resulted in the company regaining a part of its operations that it would have otherwise lost.

The Merged Entity

The merged entity would operate GSM and CDMA services and would have a presence in all of the 22 circles in India. This would prove to be highly beneficially for Telenor, considering its limited scope of operations at the moment.

The subscriber base of Telenor and Tata Teleservices at the end of September 2012 was 42.15 million and 78.36 million. Together, their subscriber base would reach 120.50 million. This would see the merged entity emerge as the fourth largest player in India between Reliance (134.85 million) and Idea Cellular (115.47 million).

This would significantly improve the current financial position of Telenor. {According to the company’s release, it has managed to brake even in one of the circles (UP East) and is likely to do so in the rest of the circles by the end of CY2013}. The impact this merger will have on the financials of Tata Teleservices is rather difficult to gauge, considering the fact that it is a private company with limited financial information in the public domain. Also the performance of Tata Teleservices (Maharashtra) which is a listed entity cannot be used as an indicator of the performance in all of the circles.

The number of deals in this space has been less due to regulatory uncertainty around spectrum ownership. The Cabinet recently endorsed the decision that companies buying a carrier that paid a low price for airwaves must match the market value determined in the recent auction and pay the difference to the government. This would result in an additional cost for Telenor, further aggravating the burden put on it by the recent auctions.

The stock price of Tata Teleservices (Maharashtra) went up by 11.95 per cent on Thursday, November 29, 2012 welcoming the move. At the same time, the stock price of Norwegian-listed Telenor has not been showing any major movement on either side. This can be attributed to the fact that operations from India account for all of 3.84 per cent of the group’s revenues and due to the indication that the deal’s impact on Telenor would be rather balanced.