Institute of Management, Nirma University

Mergers and Acquisitions

Group Assignment

M&A Strategies – Indian Telecom Industry

Submitted to:

Prof. Rajesh Kikani

Submitted by:

Siddhant Rajurkar (167157)

Tushar Prajapati (167159)

Yash Shah (167162)

Date of Submission:

6th November, 2020

Introduction - Indian Telecommunications Industry
Currently, India is the world’s second-largest telecommunications market with a subscriber
base of 1.16 billion and has registered strong growth in the last decade. The Indian mobile
economy is growing rapidly and will contribute substantially to India’s Gross Domestic
Product (GDP) according to a report prepared by GSM Association (GSMA) in collaboration
with Boston Consulting Group (BCG). In 2019, India surpassed the US to become the second
largest market in terms of number of app downloads.

The liberal and reformist policies of the Government of India have been instrumental along
with strong consumer demand in the rapid growth in the Indian telecom sector. The
Government has enabled easy market access to telecom equipment and a fair and proactive
regulatory framework, that has ensured availability of telecom services to consumer at
affordable prices. The deregulation of Foreign Direct Investment (FDI) norms has made the
sector one of the fastest growing and the top five employment opportunity generator in the
country.

Bharti Airtel - M&A Strategy

Airtel used to be the largest Indian telecom company in terms of customer base but it was
dethroned by Idea and Vodafone merger and Jio. Thus, the company took the way of mergers
and acquisitions to regain its market position.

Gaining more customer base:

Airtel was the first and the biggest telecom company in India till 2017 in terms of revenue. Till
when the second and the third largest companies in India Vodafone and Idea merged and Jio
entered the market, Airtel had to maintain the first position. They tried by doing the M&A
Spree. One of the ways of increasing revenue is by increasing the customer base. Increasing
customer base could be done by inorganic growth of acquiring other companies. Thus, they did
it with Tata Teleservices same way. In 2017, Airtel announced that they will acquire the debt-
ridden loss-making Tata Teleservices. Airtel acquired this company just to increase the
customer base of their company.
To Diversify Business:

Instead of just providing the sim card services, Airtel decided to diversify the business into
highspeed internet service. Thus, for that in March 2017, Airtel acquired Tikona Infinet
Limited a high-speed internet service provider company. The motive of Airtel behind this deal
was to access the spectrum of the company in states of Gujarat, Himachal Pradesh, UP and
Rajasthan. This deal was valued at around Rs 1600 Crores. They acquired this company to
improve its highspeed broadband service.

Acquiring Assets:

After the increased customer based, Company had to provide quality services to their customers
thus they required assets like spectrum. To sort this issue out, In February 2017, Airtel acquired
Telenor to compete with Idea-Vodafone merger and the rival Jio and provide better service to
their customers. Airtel acquired Telenor and considered to pay for the Telenor’s Spectrum of
Rs. 1650 Crores and the tower contracts. By this acquisition, Airtel received infrastructure and
also the asset of spectrum. In addition to this, Telenor had a user base of 44 million which
moved into the customer base of Airtel. This was an attractive deal the company made. After
the deal Indian telecom market were left with only three main players and they improved
profitability of their businesses.

Reliance Jio - M&A Strategy

Overview:

If there’s one company that has made its intentions loud and clear in the telecom market then
it has been Reliance Jio. Reliance Jio, after disrupting the telecom sector in India, is now on an
acquisition spree. While the Mukesh Ambani-led billion-dollar company has created a stir with
its aggressive pricing and offers, on the side lines it has been acquiring companies or stake in
companies with interests in data, entertainment and content. The most recent deal that the
Mumbai-based company struck was of conversational AI platform start-up Haptik.
However, the company also has a healthy record of buying new-age start-ups and tech
companies to expand its presence and reach new audiences. The telco ventured into music
streaming by buying Saavn. It also bought various wireless infrastructure assets of Reliance
Communications (RCom) to enhance its telecom business in the country. All these moves are
ultimately aimed to take the existing user base of over 28.01 crore users, as per Telecom
Regulatory Authority of India (TRAI), to new levels.

Major Acquisitions & Rationale:

The strategic investment in Haptik underlines Reliance Jio’s commitment to further boost the
digital ecosystem and provide Indian users conversational AI enabled devices with multi-
lingual capabilities. The investment and combination of Reliance Jio’s music assets with Saavn
underlines the company’s commitment to provide unlimited digital entertainment services to
consumers over a strong uninterrupted network. Reliance Jio also picked up majority stake in
Den Networks, Hathway Cable and Datacom to bolster its Jio GigaFiber’s operations. To kick
start its acquisitions spree in the B2C Space, Reliance Jio acquired epharmacy Netmeds,
signalling the tech giant’s intention to conquer the consumer space after winning the telecom
war in India.

Future M&A Strategy:

Reliance Jio may also enter niche markets if needed to win the digital consumer market. With
more than $15.2 Bn pumped into Jio Platforms, the company will be using a big chunk of that
cash for acquisitions in the consumer services and tech products space. In the coming future,
Reliance Jio is likely to continue the acquisition trend to retain their leadership in the market.

Vodafone Idea - M&A Strategy

The strategy behind the Vodafone Idea merger was a standalone strategy which was not
expected to happen if Jio would not have entered the market. This merger was not into line
with any of the previous acquisitions of Vodafone. Vodafone has been quite inactive into
acquisitions in India but the merger with Idea was a very much necessary step.
A major beneficiary of consolidation in the sector and the merger of Vodafone and Idea
operations is the consumer as the three top players (Bharti Airtel, Idea-Vodafone and Reliance
Jio) will bring in best technology at best prices to retain customers in a sector where brand
loyalty has been diluted by Mobile Number Portability. Vodafone and Idea have also
announced their plan to explore flexible business diversification opportunities along the lines
of Airtel’s tryst with Wynk app and Airtel Money. The two companies are also hoping to
capitalise on the first mover advantage in the Internet of Things (IoT) market in India by
commercially offering smart cars and connected homes at affordable prices.

Vodafone and Idea hope to collaborate with other investors in implementing their plans for the
future so that they can limit exposure and maximise synergistic capabilities. Only time will tell
how much of their hopes and plans will materialise into realities in the coming future. It was
too difficult for Vodafone as well as Idea to survive in the market after the grand entry of Jio
into the Indian telecom market. In order to compete against cash rich Jio and the huge market
share of Airtel, the merger was more of a need rather than a planned strategy.

M&A Narrative - Indian Telecommunications Industry

The telecom companies discussed in the report have opted for Mergers and Acquisitions
(M&A) as a strategic tool to enhance their performance.

The growth in the telecom industry in India is on the back of a dichotomous market scenario,
wherein the extremely cost-effective Reliance Jio network has threatened other firms, but has
also led to the rapid spread of online access, bolstering other channels of income such as digital
advertising and online content consumption. Telecom companies are, therefore, looking to
boost profitability and stem falling rates by reducing the number of competitors through M&A
and consolidation.

The industry is likely to be more stable with tariff wars easing out and companies focusing on
assembling their merged entities and realising synergies from them. In addition to gaining costs
saving and additional benefits from their mergers and acquisitions, the new telco super-
companies will also face less competition, allowing for rates to rise.
In essence, the wave of M&A has altered the landscape from one of a fragmented industry with
fierce competition between multiple providers which depresses consumer costs, to a more
stable market. A new wave of M&A, network sharing deals over the next two to three years
will continue to consolidate around the large mobile operators, Bharti Airtel, Vodafone Idea
and Reliance Jio.