Agreement between Bharti Airtel and Loop Mobile, which offers mobile services in Mumbai, expired on October 31
Bharti Airtel on Wednesday called off its deal to buy assets and transfer subscribers of Mumbai-based Loop Mobile for Rs 700 crore (Rs 7 billion).
The agreement, signed in February, was called off after Loop Mobile did not receive approval from the department of telecommunications (DoT) for the deal. The agreement between Bharti Airtel and Loop Mobile, which offers mobile services in Mumbai, expired on October 31.
After numerous discussions over the past few weeks, DoT was believed to be veering to the view that the deal should be given a conditional approval.
In a statement to the stock exchanges, Bharti Airtel on Wednesday said: "Under the agreements executed with Loop Mobile, the transaction was conditional upon DoT approvals, which even as of today have not been received. In this regard, we have been in discussions with Loop. Late last evening, it sent us an email noting that DoT approvals had not yet been received and that it was way beyond the time envisaged for securing such approval."
"In light of this update and the fact that Loop's mobile licence is to expire at the end of this month, we have decided to terminate the discussions with regard to the transaction for acquiring subscribers of Loop. A formal communication to this effect has been released to Loop at 05:19 pm today (Wednesday)."
When it had signed the deal with Bharti, Loop had a subscriber base of three million. This has come down to one million, with users porting to competing operators, including Airtel. Bharti had arrived at a valuation based on the revenue potential of Loop's subscriber base, which would have seamlessly shifted to it. But the telecom regulator directed Loop's subscribers be given the choice of shifting to any operator, not only Airtel.
The move puts Loop Mobile, 99 per cent of which is owned by the Dubai-based Khaitan family, in a difficult position because it can now only sell its assets, which include 350 mobile towers and electronic equipment on 2,100 leased towers, apart from 220 retail outlets. The value of these assets is much lower than what Bharti was ready to pay for Loop's subscribers.
"Bharti has decided to get out of the agreement. Loop Mobile and Bharti Airtel applied to DoT for approval of the transfer in March. As we have not received approval and since our licence expires in November, Bharti has decided to call off the deal," said a spokesperson for Loop Mobile. The spokesperson added it would now be up to the promoters to decide what is to be done with the assets.
Loop had decided not to take part in the spectrum auction in February after it struck its deal with Bharti. Also, just before the auctions, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) had dismissed its plea for a renewal of its licence in Mumbai.
While Loop agreed to the regulator's demand that its subscribers be allowed to switch to operators of their choice, there is another sticky issue that could have held up approval for the deal with Bharti. DoT claims Loop Mobile and its sister concern, Loop Telecom, owe about Rs 800 crore (Rs 8 billion) in spectrum and other charges to the government. The penalty was imposed on Loop for allegedly violating 2G spectrum licence norms by discontinuing operations in 20 circles.
Loop Mobile CEO Sandip Basu had earlier written to DoT, saying the claim was sub judice as the matter was being heard by TDSAT. Loop has agreed to pay according to the final judicial determination.
In an internal communication, the telecom ministry had indicated that it would approve the transfer of Loop's assets to Airtel. DoT had stated there was no prohibition on slump sales in licence terms, and as Bharti Airtel and Loop Mobile were meeting all regulatory requirements and had addressed the telecom regulator's concerns, the deal should be given a go-ahead.
Most existing Loop subscribers have not faced much disturbances in regular service, but Vodafone and MTNL are said to have restricted incoming calls over non-payment of inter-connect charges by Loop.
With the deal off, a Rs 215-crore (Rs 2.15 billion) loan by Axis Bank to Loop Mobile would be at risk, the bank had informed DoT earlier. A consortium led by Axis Bank had advanced Rs 350 crore of loans to Loop Mobile and the current outstanding stands at Rs 215 crore.
Out of Loop
User base: Loop's customer base has fallen from 3 million in February to 1 million now
Portability: The plan was to port Loop's subscribers seamlessly to Bharti Airtel's network
Valuation: Was arrived at on the basis of future potential of high-Arpu Loop subscribers, 220 retail outlets, 350 towers and about 2,100 electronic equipment on leased towers
Arpu: Loop's blended Arpu is about Rs 225, against the sectoral average of about Rs 100 and Airtel's Rs 195
Objection: Trai objected to seamless transfer of users to Airtel's network, saying users should be given the choice of operators, according to mobile number portability rules
Owners: The Dubai-based Khaitan family owns a 99% stake in Loop, which operates only in the Mumbai circle
