Telenor, the Norwegian parent of Indian telecom carrier Uninor, is in talks to buy a majority stake in Videocon Telecom. But a 500-crore liability that the Venugopal Dhoot-owned company has towards the government remains a major sticking point and potential deal-breaker.
“A combination is a win-win for both. Videocon wants to exit the business and Uninor needs to expand in the market to stay relevant,” a person familiar with the talks said. “Since both are relatively small and both have liberalized spectrum, they won’t have a problem with existing M&A rules. They don’t need to bother about the spectrum caps as well.”
However, he said the issue over paying the 500 crore arrears, which the telecom department wants from the Videocon group company, needs to be resolved before any deal is sealed.
“Valuations can still be sorted out, though there are some differences,” a second person said. Videocon is seeking an enterprise valuation, which includes the debt on the company’s books, of around 10,000 crore.
Videocon Telecom is among the nine mobile carriers, including Uninor, who were asked by the telecom department to make a one-time airwaves charge for continuing to provide mobile services even after India’s apex court quashed their permits in February 2012.
The 500 crore demand on Videocon is linked to airwaves used by the company between February 2, 2012 and February 15, 2013. Each operator is currently arguing its case with the department.
Videocon Telecom chief executive Arvind Bali confirmed that the company is in talks with “international companies” for a stake sale, but didn’t elaborate. He declined to comment on a query on the dues.
A Telenor Group spokesman declined to comment. In an interview to ET in February, Uninor CEO Vivek Sood had said Videocon Telecom was “a viable option” for a buy. “There is an obvious compatibility since both of us have got liberalized spectrum,” he had then said.
Importantly, it bought spectrum in the 1800Mhz band — this can be used to offer 4G services — in an auction, which means Telenor wouldn’t need to pay anything more to the government if it acquires the same bandwidth. Current M&A rules require a buyer to pay market-linked price for spectrum that it gets through an acquisition if the target’s airwaves were allocated outside of auctions. This condition had been a major roadblock to deals.
It currently offers 2G voice and data services but wants to dive deeper into the data play through 3G or 4G services at the earliest to stay relevant in the market. Since it didn’t buy any 3G airwaves in the recent auctions, its big hope will be leapfrogging to 4G, which though is still in its infancy in India.
Though Uninor and Videocon’s permits overlap in four circles, current M&A rules allow operators to come together as long as the combined market share of the two entities didn’t exceed 50%.
Videocon’s Bali conceded that starting a mobility business in a new circle is becoming unviable for a new player at prevailing spectrum prices. “Videocon sees more opportunity in non-spectrum telecom businesses like smart cities, fibre-to-the-home services, carrier-grade Wi-Fi services, broadband using unlicensed spectrum and B2B and B2C services, including mobile wallet and e-commerce,” he said.
Bali pegs the company’s enterprise value at 10,000 crore, on the grounds that it has 10 million customers, 5MHz of liberalized and contiguous airwaves in six growth markets, as well as strong sales & distribution networks.
But an analyst at a European brokerage said the expectation is on the higher side since the quality of Videocon’s mobile customers can’t be compared with those of the leading carriers. Also, its average revenue per user at 148 is well below the industry average of 160, this analyst said.