Bharti Enterprises’ move to acquire a 24.5 per cent stake in the UK’s BT has led to significant speculation about the Indian group’s long-term intentions. Bharti bought the stake for around $4 billion from Altice, the European multinational owned by French-Israeli billionaire Partick Drahi. Bharti will initially acquire 9.99 per cent stake in BT through its subsidiary, Bharti Televentures UK, with the remaining 14.51 per cent to be acquired after obtaining regulatory clearances. Barclays Bank and Linklater were advisors on the deal.
Although Bharti will become the largest shareholder, this does not give the company a blocking stake in the British telecom company. It has also been reported that Bharti is not interested in taking a seat on the board of BT. BT retains roughly three-quarters of the UK’s telecom infrastructure through a subsidiary, and Bharti may have faced challenges in securing regulatory approval for a larger stake. Incidentally, the two groups have a long-standing relationship. BT held a 21 per cent stake in Bharti Airtel and had two board seats between 1997 and 2001.
In strategic terms, the Bharti Group’s intentions regarding the investment remain unclear. BT is a player in a large but saturated first world market, which is growing very slowly, if at all. Bharti Airtel, with its 550 million customers across 17 South Asian and African nations, is far larger than BT. It has a market value of over $100 billion and significantly higher growth prospects in those regions than in the UK. Moreover, the group does not have cash to burn as it still has capex commitments in India, despite the reduced intensity following the near-completion of its 5G roll-out.
The group also has significant debt on its balance sheet and the cash-funded BT deal will add to existing balance sheet stresses. Bharti’s other high-tech investment in Britain is in the satellite company, OneWeb, where it clearly has a strategic interest since it is rolling out satellite-based internet services.
Analysts believe that the recent change of government in the UK has brought to power a team with very different views on industrial policy and public-private partnerships compared to its predecessors. Given a Labour government, there could be opportunities for BT to benefit from government support and public investment. India’s High Commissioner to the UK commented that the deal would “support BT’s plans to build fibre, roll out 5G and develop services.” The comment is an indicator that there are some geopolitical considerations, since diplomats typically do not comment on purely business transactions.
It may also be noted that BT’s profile goes beyond being just a mobile service provider and competitor in the market. It also owns BT Openreach, a subsidiary which is the major builder of the broadband network in the UK. The roll-out of fibre in the UK has been disappointingly slow, but it may now accelerate, given that a key policy priority for the new Labour government is reforms that make it easier to build infrastructure. A quicker roll-out could expedite the transformation of Openreach – and thus BT – into a fibre company, with stable new revenue streams, including a share of broadband rentals.
Bharti’s entry into the UK telecom market comes at a time when there is dissatisfaction with the poor quality of 5G services in the country. This may be partly due to the UK’s decision to avoid Huawei-linked equipment in building its telecom infrastructure backbone. However, Bharti Airtel has successfully demonstrated (alongside its rival Reliance Jio) that it is capable of rapid 5G roll-outs across India’s much larger and more diverse geography. Hence, it may see an opportunity in the UK’s 5G space. BT’s CEO, Allison Kirby, has announced plans to cut costs by GBP 3 billion and invest in building a fibre network. If these plans are successfully implemented, BT’s valuations and revenues could see improvement. While Sunil Bharti Mittal, founder and chairman, Bharti Enterprises views this as a long-term investment with a useful pooling of ideas, there seem to be no plans to be actively involved in BT’s management.
The justification for this deal lies in a combination of long-term factors. As a passive investment, Bharti may view its stake in a dominant infrastructure player as a good investment in a large market. Moreover, with the UK experiencing recessive conditions and the Altice Group struggling financially, the market value of the stake was relatively low. Given BT’s plans, there could be significant valuation gains as the UK economy recovers and BT implements its plans. Technical cooperation and R&D insights across different markets could also enable Airtel to generate more value from its own operations.
“This investment demonstrates the confidence we have in BT and the UK. BT has a strong portfolio of market leading brands, high-quality assets and an experienced management team with a compelling strategy mandated by the BT board to deliver value over the long term, which we fully support. Bharti and BT have enjoyed a long-standing relationship – BT owned a 21 per cent stake along with two board seats in Bharti Airtel Limited from 1997 to 2001. BT is playing a vital role in expanding access to full-fibre broadband infrastructure for millions of people across the UK. Its focus on strengthening its networks, driving consumer growth, and optimising every aspect of its business makes it well-placed to consolidate its position as a leading global telecoms company. Bharti’s own record of owning and operating telecom and broadband networks around the world is underpinned by placing customers, digital innovation and operational efficiency at the heart of its business.”
Sunil Bharti Mittal, Founder and Chairman, Bharti Enterprises
“We review global investment opportunities in the world of technology from digital infrastructure to software. BT is well known to us from the long association with Bharti, so we are pleased to have this opportunity to acquire a significant stake in the company. We believe that BT is poised for leadership in the telecom arena, especially home broadband services.”
Shravin Bharti Mittal, Managing Director, Bharti Global
“We welcome investors who recognise the long-term value of our business, and this scale of investment from Bharti Global is a great vote of confidence in the future of the BT Group and our strategy. BT has enjoyed a long association with Bharti Enterprises, and I am pleased that they share our ambition and vision for the future of our business. They have a strong track record of success in the sector, and I look forward to ongoing and positive engagement with them in the months and years to come.”
Allison Kirby, Chief Executive Officer, BT
Devangshu Datta
