Loop left in the lurch as Airtel abandons takeover

6 Nov 2014

Bharti Airtel has cancelled its deal to purchase the assets and subscribers of Mumbai-based telco Loop Mobile following prolonged delays in receiving government approval, the Economic Times reports. Airtel agreed to take over the operator back in February this year, but the deal faced opposition from the Telecom Regulatory Authority of India (TRAI) and the Department of Telecommunications (DoT), the former claiming that the deal would violate mobile number portability (MNP) rules and cause a loss of revenue for the government, as the users ported over to Airtel from Loop would not be required to pay the porting fee. The DoT, meanwhile, had locked horns with Loop over unpaid dues totalling INR8 billion (USD130.43 million). Loop had been compelled to sell up after the cancellation of its subsidiary Loop Telecom’s licences in February 2012 left it out of pocket and unable to fund the renewal of its Mumbai concession, which expires later this month. In October, having heard nothing from the regulators about a potential time scale for the deal’s approval, Loop wrote to the DoT, offering to limit the transaction to customers only and to cover the porting costs for subscribers that wanted to switch to an alternative provider. By that stage, however, Loop’s subscriber base had fallen from close to three million in March 2014, to just 1.2 million.

Regarding its decision, Airtel said in a statement: ‘Loop had late last evening sent us an email noting that DoT approvals had not yet been received and had also noted that it was way beyond the time envisaged for securing such an approval. In light of this update, and the fact that Loop’s mobile licence is set to expire at the end of the month, we have decided to terminate the discussions with regard to the transaction for acquiring the subscribers of Loop.’ However, the deal has left Loop in a difficult situation, the company was relying on the proceeds of the sale to repay its creditors. A Loop senior official commented that Airtel’s decision was a ‘huge loss’ for the company.

The DoT’s failure to act on the deal has raised doubts regarding India’s MNP rules and their potential impact on future M&A transactions. Arpita Agrawal, telecom leader at PricewaterhouseCoopers India, commented that government needs to set out clear rules on how customers are transferred through mergers, adding that ‘post-MNP clarity is critical for future deals to happen in India.’ Indeed, telecom minister Ravi Shankar Prasad has acknowledged the shortcoming and has said that the government will set up a panel to revisit the MNP policy and to determine whether or not M&A guidelines need to be altered.