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India's Airtel to Take Over Tata Teleservices

Gagandeep Kaur

Tata Teleservices, which had been exploring ways to exit the Indian telecom market, is to sell its consumer business group to Bharti Airtel, India's largest service provider. (See Tata Teleservices Mulls Exit Option and India's Airtel, Tata Explore Mega Merger Reports.)

The tie-up would represent the second-biggest deal in India's market this year, after the merger between Vodafone India , the country's second-biggest operator, and Idea Cellular Ltd. , its third largest. Yet consolidation has long been coming in such a hyper-competitive environment, where prices have tumbled just as operators' debts have piled up.

The disruptive entry of Reliance Jio into the market last year was the catalyst for the deals that are now taking place. Bharti Airtel Ltd. (Mumbai: BHARTIARTL) has already acquired Videocon Telecommunications Ltd. , Tikona Digital Networks Pvt. Ltd. and Telenor this year, with smaller telcos finding it almost impossible to fight RJio's predatory pricing strategy. Reliance Communications Ltd. , another one of the big players, is also facing uncertainty after its planned merger with rival Aircel Ltd. fell through. (See India's RCom Eyes Asset Sales After Aircel Merger Collapses .)

The merger between complink {5399|Tata Teleservices Ltd.} and Airtel means the former's 40 million subscribers will move to Airtel's network. It will also allow Airtel to use Tata's fiber network and give it additional spectrum in the 1800MHz, 2100MHz and 850MHz frequency bands. That will help the operator to improve its 4G coverage.

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"On completion, the proposed acquisition will undergo seamless integration, both on the customer as well as the network side, and further strengthen our market position in several key circles," said Sunil Bharti Mittal, Bharti Airtel's chairman, in a company statement. "The acquisition of additional spectrum made an attractive business proposition. It will further strengthen our already solid portfolio and create substantial long term value for our shareholders given the significant synergies."

The merger is a lifeline for Tata. Its debts have risen to about 340 billion Indian rupees ($5.2 billion) and it was previously in talks with Vodafone India about a possible deal. Tata Sons, the parent company of Tata Teleservices, will now take care of borrowings and other liabilities, with Airtel to handle only a small portion of its unpaid spectrum fees, according to a press release.

But the deal is a troubling one for employees in the sector. Media reports have indicated that nearly 5,000 people could lose their jobs as a result of the merger, which has yet to secure approvals from the Department of Telecommunications and other government agencies.

"We believe today's agreement is the best and most optimal solution for the Tata Group and its stakeholders," said N. Chandrasekaran, the chairman of Tata Sons, in a company statement. "Finding the right home for our longstanding customers and our employees has been the priority for us. We have evaluated multiple options and are pleased to have this agreement with Bharti Airtel."

Gagandeep Kaur, contributing editor, special to Light Reading

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