Rajiv Sharma Of SBICAP Explains Why Bharti Airtel Needs Vodafone Idea

Huge AGR dues of telecom companies to the government is threatening further consolidation in the struggling sector. Top executives of Vodafone Idea have made it clear that, in absence of any relief from the government in the AGR case, the company may struggle to run business in India.

In an interview with CNBC-TV18, Rajiv Sharma, head of research, SBICAP Securities, discussed an interesting report on why Bharti Airtel needs Vodafone Idea.

Sharma pointed out that shared infrastructure helped cut costs for telcos and provided lower-tariff services to consumers. “India has been the lowest tariff market and we have seen so many charts talking about how low the tariffs are in India,” he said.

Shared infrastructure

“You have companies which used to operate at 30-35 percent EBITDA margins with the lowest tariffs in the world. So it has to go along with the low-cost model. It was delivered with tower sharing,” he noted.

The telecom companies also do a lot of fibre sharing as well which is kind of barter today, and this has allowed building a low cost or affordable telecom business model, said Sharma.

“Now with Reliance Jio having its own tower and Bharti having Infratel and let us say Vodafone was to shut down because of the AGR outcome, then what happens to the tower company?” argues Sharma.

The low-cost model would be on a declining way or may not exist in case Vodafone Idea shuts shop, he added.

Another aspect, Sharma said, is management bandwidth.

“Today telecos, after the tower companies, are able to focus a lot on core operations, sales marketing, customer experience, launch Airtel Thanks and Wynk, etc. The moment they have to start building their own towers tomorrow, the management bandwidth will go away.”

Impact on Bharti Airtel

Sharma said Bharti Airtel would incur huge expenses if Vodafone Idea exits India. “Internally they could do a lot of things about managing cost and cutting cost. But, most likely most of the new towers which come up will have to be built by Bharti only which means Bharti’s capex would go up.”

About 50-60 percent of what is Infratel’s capex today may go directly in the books of Bharti, he said.―CNBC TV18