Bharti-Videocon Spectrum deal :- Idea's big Loss!!

Idea Cellular came out with an announcement on 16th March that it has cancelled it's Spectrum purchase deal for the two circles of Gujarat & UP (W) from Videocon Telecom. The very next day, i.e. on 17th March, Bharti Airtel sprung a surprise by announcing a deal to buy Videocon Telecom's spectrum in all six circles of UP (E), UP (W), Bihar, Haryana, Gujarat and Madhya Pradesh&Chattisgarh. What was a bigger surprise was the price that Bharti Airtel is paying for this acquisition. Compared to the amount of Rs.3310 crores that Idea Cellular had previously agreed to pay Videocon for spectrum in only 2 circles, Bharti Airtel is now getting spectrum in all six circles for just Rs.4428 crores!!

While the price that Idea Cellular had agreed to pay was certainly on the exorbitant side, the price that Bharti Airtel managed to negotiate the deal for seems to be more or less fair value. I am sure that Idea too was trying hard to bargain for a lower price than the one they had initially agreed to pay. On the other hand, some reports suggest that Videocon was trying to convince Idea to buy spectrum in all the six circles as a package, which Idea was not willing to do. Frankly I don't understand the logic behind Idea's decision to NOT Buy the entire package, especially when Videocon was willing to sell it at a price which was just about 33% higher than the price Idea had agreed to pay only for 2 of the 6 circles!! Or maybe Bharti Airtel applied some special Negotiation Skills to convince Videocon to part with it's spectrum at an 'attractive' price.

Coming to other numbers as regards to whom did the six circles matter more, I again think that it's a Big Loss for Idea Cellular. The Six circles in question contribute nearly 37% of Idea Cellular's Total AGR, while it does not have 4G compatible spectrum in 4 of the 6 circles. Idea already has 4G spectrum in Madhya Pradesh and Haryana circles. These two circles contribute around 14.5% of Idea's Total AGR. That means if Idea had acquired spectrum in all 6 circles, then it would have enabled it to offer 4G service in the additional 4 circles, which contribute almost 23% of it's Total AGR and also strengthened it's 4G spectrum holding in 2 circles which are also very important to the company. On the other hand, the six circles contribute around 22.5% of Bharti Airtel's Total AGR and the company is No.1 operator in just 1 of those 6 circles!! Amongst these 6 circles, Airtel is No.1 in only Bihar & it did not have 4G spectrum for this circle as well as 4 of the remaining 5 circles. This acquisition is certainly positive for Bharti Airtel as it will now be able to offer 4G service in 19 out of India's 22 telecom circles. Airtel will now be better able to protect it's revenues from RelJio onslaught and possibly even snatch market share from other operators like Vodafone & Idea Cellular who won't be able to offer 4G service in many of these circles. Ofcourse it will take a few months before Airtel is able to offer 4G service in these circles as it will take time to get regulatory clearances first and then to roll out network infrastructure. But at least it is in a much better position than both Vodafone & Idea Cellular as these two will have to solely rely on their 3G network for most circles to try and protect their revenues.