By G. Sharmila
Last week, Malaysian-based regional telco Axiata Group Bhd announced in a filing to Bursa Malaysia that it is in talks with Bharti Airtel to merge their telco units in Bangladesh. Tiger thinks the merger should happen, for it’s in the best interests of Axiata to do so, provided a few hurdles are overcome.
In the filing, it was mentioned that both companies had entered into exclusive discussions to explore a possible merger of their telecom units in Bangladesh, namely Robi Axiata Ltd (98% owned by Axiata) and Airtel Bangladesh Ltd.
“This announcement is to facilitate the ongoing discussions and exchanges of information between the parties, including but not limited to discussions with the relevant regulatory authorities,” Axiata said in the filing. Further announcements will be issued if there is any material development in the matter.
Now, Tiger is not one to usually jump the gun, but she does love happy endings and she would like to posit some reasons why such a merger would be a good idea for Axiata, provided the right things are in place. Let’s take a look at the target market first, namely Bangladesh.
The country, which reportedly had 128.77 million mobile subscribers at the end of July, has six telecom operators. According to the Bangladesh Telecommunication Regulatory Commission website, as of end July, leading the market is Telenor-run Grameenphone with 53.98 million users, followed by Egypt-owned Orascom’s Banglalink which 32.4 million users. Robi has 27.92 million users, while Airtel has 9.08 million users.
Therefore, a merger between Robi and Airtel would create a strong number two player in the market, overtaking Banglalink. A Bharti spokesperson was enthusiastic about the merger, according to Livemint.com. “The proposed merger, where we will be a strategic minority partner, will combine the strengths of both companies to create the second largest mobile operator in Bangladesh with over 37 million customers. This will lead to greater industry stability and translate into affordable and innovative products and services for customers through continued investments,” said the spokesperson.
Details on the proposed merger are sketchy at the moment, so it’s quite difficult for Tiger to predict the impact the merger will have on Axiata. Analysts Tiger surveyed appeared neutral on the merger talks news, with RHB Research saying in a September 10 report that the impact to earnings should be minimal for Axiata, as Robi contributes some 6.6% to Axiata’s bottomline.
The research house also pointed out that in-country consolidation is not new to Axiata. In 2012, Hello Axiata Company Ltd and Latelz Company Ltd Cambodia merged, which led Axiata to become the market leader in Cambodia. The XL Axiata-Axis merger in Indonesia is another exercise that is set to benefit Axiata in the long run in that country and likely it is looking for the same in Bangladesh.
However when asked by Tiger what’s in it for Axiata to merge Robi with Airtel Bangladesh, an analyst with a Malaysian bank-backed research house pointed out that it’s not so much Airtel’s subscriber base that Axiata wants than the latter’s spectrum in Bangladesh.
That may very well be true of a competitive market like Bangladesh which, as mentioned earlier, has six operators. Spectrum in any country is a precious resource and being part of a merged entity will gain Robi the widespread coverage it is currently denied.
However, both Axiata and Bharti need to brace themselves, as the South Asian telecommunications markets are notorious for having tough-as-nails regulators. The proposed merger is up against Bangladesh’s country’s merger and acquisition regulations which are not conducive to industry consolidation, an analyst was quoted saying in a Livemint.com article on the merger.
Tiger is going to adopt a wait-and-see attitude to see how this pans out, for too few details are available on the proposed merger for a more thorough commentary. Tiger hopes however, that the regulators turn out to be in favour of the merger, for Axiata’s sake.
GRRRRR!!!
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