MTN – Bharti Airtel – Expensive Deal + Intercontinentanl Regulatory Hurdles
Bharti Airtel has entered into an exclusivity agreement (till July 31) to enter a complicated and circular ownership structure with MTN Group – Bharti owning 49% stake in MTN and MTN owning 25% of Bharti in return. The structure envisages a 25% swap of new shares (MTN pays $2.9bn). The cross-shareholding structure seems aimed at ensuring smooth regulatory acceptance [SingTel holds 30% in Bharti Airtel] though it complicates deal valuations due to circularity. Technical, procedural, and regulatory complications are many and will take time to iron out especially if they are to carry through towards an eventual merger.
MTN operates in 21 countries in the Middle East and Africa, with Nigeria (26% of MTN’s subs base), Iran (19%) and South Africa (18%) as major markets, contributing 67% to 2008 revenues.
In the current market scenario, Bharti is paying 36% premium to MTN’s last traded price. Our estimates show that the transaction effectively values MTN at US$34.5bn, a 30% premium to its market cap on 22 May closing price. However, the implied EV per subscriber valuation of MTN at US$367 compares with US$381 for Bharti at current prices.
The final deal is not yet sealed so stay tuned as and how talks proceed.
Vodafone Esaar – Higher Impact than Bharti / Idea
Vodafone Essar’s rev/min declined 2.3% qoq and MoU declined 5.6% qoq. This also confirms a trend – MoU/ARPU hit has been more for operators with greater metro/urban presence. In case of Vodafone, lower roaming and diversion to RCOM’s free mins can be seen as the primary reason for the decline. The impact of free mins will likely reduce in 1QFY10 and usage could also be boosted by electoral activity 
Vodafone’s capex was Rs102bn for FY09, slightly higher than Bharti, and reflecting: narrowing of the coverage gap and upfront capex in new roll-outs.
The following two charts show how ARPUS and MOUs have declined for Bharti Airtel, Vodafone India, Idea Cellular and Reliance Communications in between Sept-2007 and March-2009.
COAI protests introducing 11-digit mobile numbering
Cellular Operators Association of India (COAI), the GSM operator lobby, is protesting the 11-digit mobile numbering on the back of inconvenience to the subscribers after the Department of Telecommunications (DoT) recommended for the new numbering plan. Instead, they are demanding to put up an end to the exclusive two-digit operator code provided to three service providers.
DoT’s Technical Engineering Centre is expecting the industry to run out of mobile numbers since the subscriber base has been expanding by 10 million users every month, which was recommended and forwarded to the government.
COAI has said that there was no need to alter the present numbering structure because the current plan was not utilised properly and was lopsided and would lead to massive disruptions to existing mobile users and operators, since all roaming agreements have to be re-aligned and all equipment modified. It is expected that the COAI would raise voice against the proposed move to the Telecom Regulatory Authority of India (TRAI).
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