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2016

Tarek mahmud
ID: 18147
18-Feb-16
Project Topic: The Recent Challenges of the Telecommunication Sector in
Bangladesh: Robi-Airtel Merger

Submitted to:
Md. Mazharul Anwar
Assistant professor
Dept. of Accounting & Information Systems
University of Dhaka

Submitted by:
Tarek Mahmud
Id: 18147, 18th Batch, Section- B
Dept. of Accounting & Information Systems
University of Dhaka

Date of submission: February 18, 2016


February 18, 2016

Md. Mazharul Anwar


Assistant Professor
Department of Accounting and Information Systems
University of Dhaka

Subject: Submission of project paper on ―The Recent Challenges of the Telecommunication


Sector in Bangladesh: Robi-Airtel Merger.‖

Dear Sir,

I would like to submit the ―Project paper‖ for your kind inspection. This project is a summary
and analysis of a recent topic of telecommunication sector. The topic of project is ―The recent
challenges of the telecommunication sector in Bangladesh: Robi-Airtel merger”. To carry out
the project, I have gathered various papers/document periodicals etc. I have practically
observed and analyzed two companies‘ financial statement, financial strength, opportunities
and threat. I also assessed their management and other efficiencies to know about their
potential market. On the basis of these secondary data and practical observation, I have
prepared the project later.

Hence, I hope that you would be kind enough to accept this project paper for analysis and
review.

Sincerely yours,

Tarek mahmud
ID: 18147 Batch: 18th
Department of accounting and information systems
University of Dhaka
In the beginning, I want to give thanks to the Almighty to help me complete this project on
―The recent challenges of telecommunication sector in Bangladesh: Robi-Airtel merger‖.
Though it was a complex task for me to analyze it before merger, I get extraordinary support
from my supervisor to complete it. I have completed overall process from qualitative and
strategic point of view.

I am thankful to my instructor Md. Mazharul Anwar, who helped me to complete this project
paper in the right process. Without his unconditional help, It would not be able to complete
this project paper in due time. His valuable advice and proper direction helped me to
complete it within a short period of time.

I am really acknowledged to my supervisor for his instruction on research paper writing


guideline, recent issues, obstacles and some other important term like poison pill and golden
parachute to help me giving extra consideration. Because without his help and support it will
not be possible to prepare this term paper.
Two telecom operators Robi Axiata Ltd and Airtel Bangladesh Ltd want to merge their
business operation in Bangladesh. This will be the first and largest telecom merger in the
history of Bangladesh. It is said that, after merger Robi will be the telecom operator with 39
million subscribers and 29% of market share and hold second position in the telecom industry
after market leader Grmeenphone. According to Moody‘s investor service this merger will be
credit positive for both parent companies. A lot of issues related to merger still need deep
consideration. In this paper, I have searched for some important issues like objectives,
benefits and opportunities of this merger. I also analyzed what weakness and threats will face
by merging entities. I have investigated two operators financial position to assess the reason
behind this merger also analyzed whether it will help them to compete with other operator
and what extend. I did a survey to assess customer‘s demand of Robi and Airtel from this
merger. I also used two companies last five years financial performance to evaluate their
strength to be a good join venture.

My findings are a lot, I found that Robi will be second largest telecom brand and Merger will
increase Robi‘s service quality, faster internet, network coverage, new technology adoption
and capability to serve customer better. But if Robi cannot manage all the resources
effectively then merger will be a burden for it. Also Robi will face a lot of problem with huge
subscribers, spectrums, cell towers, and customer demand. I think my research paper will
benefit those who will work for before and after merger comparisons of the market and whole
telecom industry of Bangladesh.
Chapter 1: Introduction ..................................................................................... 8
1.1 Robi Axiata Limited .................................................................................... 9
1.2 Airtel Bangladesh Limited ......................................................................... 10
1.3 Background of the Study ........................................................................... 11
1.4 Problem Statement ..................................................................................... 11
1.5 Objectives of the Project ............................................................................ 11
1.6 Scope of This Project ................................................................................. 12
1.7 Expected Outcomes of the Project paper ................................................... 12
1.8 Limitations of the Project .......................................................................... 13
Chapter 2: Methodology................................................................................... 14
2.1 Literature Review ...................................................................................... 14
2.2 The Research Process ................................................................................ 15
2.2.1 Quantitative Research....................................................................... 15
2.2.2 Qualitative Research ......................................................................... 15
2.3 Search for Empirical Information .............................................................. 15
2.3.1 Primary Data ..................................................................................... 16
2.3.2 Secondary Data ................................................................................. 16
2.4 Analysis, Conclusion and Recommendation ............................................. 16
Chapter 3: Qualitative Analysis ...................................................................... 17
3.1 Bangladesh Telecom Market ..................................................................... 17
3.2 Market Position of Robi Axiata Ltd .......................................................... 18
3.3 Market Position of Airtel Bangladesh Limited.......................................... 20
3.4 Comparative Analysis of Robi and Airtel ................................................. 21
3.5 The main Objectives of The Merger .......................................................... 22
3.5.1 Operational synergy .......................................................................... 23
3.5.2 Optimized Strategy ........................................................................... 24
3.6 Probable Market Position of Robi after Merger ........................................ 24
3.7 Rationale for and Synergies from Transaction .......................................... 26
3.8 Approaches to the Merger.......................................................................... 26
3.8.1 Poison Pill.......................................................................................... 27
3.8.2 Golden Parachute ............................................................................. 27
3.9 Legal and Others Obstacles ....................................................................... 27
3.9.1 Legal obstacles .................................................................................. 27
3.9.2 Obstacles from Regulatory Body ....................................................... 28
3.9.3 Government Obstacles ..................................................................... 28
Chapter 4: Quantitative Analysis .................................................................... 29
4.1 Subscribers portion in survey .................................................................... 29
4.2 Reason for using current operator by subscribes ....................................... 29
4.3 Do you think this a hostile takeover by Robi?........................................... 30
4.4 What do subscribers expect from this merger? ......................................... 30
4.5 Do you think that this merger will develop the telecom industry of
Bangladesh and what extend? .......................................................................... 31
4.6 Do you think Airtel will be benefitted by this merger and what extend? . 31
4.7 Why Robi is going to merger with Airtel? ................................................ 32
4.8 Poison Pill and golden parachute are strategy used by target to discourage
hostile takeovers. Do you think Airtel should use these strategies?................ 32
4.9 Will this merger add additional value to their customers and what extend?
.......................................................................................................................... 33
Chapter 5: SWOT Analysis.............................................................................. 34
5.1 Strength of Robi-Airtel Merger. ................................................................ 34
5.2 Weakness of Robi-Airtel Merger............................................................... 34
5.3 Opportunities of this Amalgamation ......................................................... 34
5.4 Threats Available in this Merger ............................................................... 35
5.4.1 Internal Threats ................................................................................ 35
5.4.2 External Threats ................................................................................ 35
Chapter: 6 Findings .......................................................................................... 36
6.1 Network and Services Amalgamation ....................................................... 36
6.2 Spectrum utility.......................................................................................... 36
6.3 Numbering Plan ......................................................................................... 37
6.4 Transition of Airtel subscribers to Robi .................................................... 37
6.5 Potential Risks for Robi ............................................................................. 37
Chapter 7: Conclusion ...................................................................................... 38
Appendices ......................................................................................................... 39
Appendix 1: Application to BTRC chairman. ................................................. 39
Appendix 2: Questionnaire for Survey ............................................................ 40
List of References .............................................................................................. 41
Two telecommunication giants Robi and Airtel are talking about to merge their business
operation in Bangladesh. The joint venture will be recognized as Robi. Two operators started
their merger talks in the last September and submitted their joint merger application to
BTRC. A high court branch gave eight weeks to the government telecom regulator to come to
final decision on merger on 25 January 2016. It is said that after merger Robi will be the
second largest telecom operator after Grameenphone limited. According to Moody‘s investor
service this merger will be credit positive for both parent companies. According to the
proposed merger Robi will be the operator of 3.9 cores subscribers, 29% market share, and
Tk 7000 cores of market revenue.

Reference: The daily star on January 29, 2016

Bangladesh Telecommunication Regulatory Commission (BTRC) made an announcement to


hold a public hearing on Robi-Airtel merger on 17 February 2016 to settle the merger issue.
All stakeholders including others operators head, lawyer, subscribers associations were
present to complete the deal. A total of 98 professionals took part in the hearing presided over
by BTRC Chairman Shahjahan Mahmood. Of them, 34 people gave their views and 28 of
them spoke in favor of merger. Robi Axiata Ltd announced, after signing the merger deal on
Thursday, the new company will operate under the name Robi. Robi and Airtel expect that
they would get necessary approval of their deal by June 2016.
1.1 Robi Axiata Limited

Robi is the rapidly-growing and dynamic telecommunications operator in Bangladesh. It is


developing its services to meet increasing customer needs - ranging from voice to high speed
Internet services. Robi is a joint venture company between Axiata Group Berhad of Malaysia
and NTT DoCoMo Inc. of Japan. It commenced operation in 1997 as Telekom Malaysia
International (Bangladesh) with the brand name ‗Aktel‘. In 2008, AK Khan and Company
exited the business by selling its 30% stake to Japan's NTT DoCoMo for US$ 350 million.
On March 28, 2010, the service name was rebranded as Robi which means Sun in Bengali. It
also took the logo of parent company Axiata Group which itself also went through a major
rebranding in 2009. In 2013, after five years of presence, DoCoMo reduced its ownership to
8% for Axiata to take 92%. In 2010 the company was rebranded to ‗Robi‘ and the company
changed its name to Robi Axiata Limited.

Robi draws from the international expertise of Axiata and


NTT DoCoMo Inc. Services support 2G and 3.5G voice,
CAMEL Phase II & III and 3.5G Data/GPRS/EDGE service
with high speed internet connectivity. Its GSM service is
based on a robust network architecture and cutting edge
technology. The company has the widest International
Roaming coverage in Bangladesh connecting 600 operators
across more than 200 countries. Robi‘s customer centric solution includes value added
services (VAS), quality customer care, digital network security and flexible tariffs. Since its
inception in 1996, Axiata Group and its predecessor Telekom Malaysia has invested around
BDT 11,000 crore in the form of equity till 2012. Moreover the company has contributed
almost BDT 10,000 crore to the Bangladesh Exchequer in the same period.

As a subsidiary of Axiata Berhad Malaysia, Robi draws on leading edge technology to


provide its service in Bangladesh, covering almost 100% of the population, Robi is
committed to provide best data and voice quality and will continue to ensure that its
customers are able to enjoy the best experience through leading edge technology and
innovative products and services.
1.2 Airtel Bangladesh Limited
Airtel Bangladesh Limited is one of the fastest growing mobile services providers in Bangladesh and
is a concern of Bharti Airtel Limited, a leading global telecommunications services provider. The
company offers a wide array of innovative mobile services, including voice, value added services,
data and m-commerce products and is focused on expanding its state-of-the-art mobile network both
for coverage and capacity.

With a customer base of more than 10 million, Airtel Bangladesh is the most preferred youth brand of
the country that thrives on excellent data service. To make customer's lives easier Airtel Bangladesh
has Doorstep Service by which customers can enjoy all kinds of service at their preferred place. M-
Commerce opened a new horizon in money transfer that gives Airtel customers the freedom to send
money to their dear ones instantly from their mobile. Through M-health, customers can now reach
professional doctors over phone 24/7 and get basic treatment.

In 2010, Warid Telecom sold a majority 70% stake in the company


to India's Bharti Airtel Limited for 300 million US$. Bangladesh
Telecommunication Regulatory Commission approved the deal on
Jan 4, 2010. Bharti Airtel Limited took management control of the
company and its board, and rebranded the company's services under
its own Airtel brand from December 20, 2010. On December 21,
2011, Airtel Bangladesh launched "Airtel Circle of Friends", the
first ever Interactive Commercial in Bangladesh, created and executed by Digimarka. In March, 2013,
Warid Telecom sold its rest 30% share to Bharti Airtel‘s Singapore-based concern Bharti Airtel
Holdings Pte Limited for 80 million US$. On September 8, 2013, Airtel Bangladesh received 5 MHz
3G spectrum with 1.25 million US$.

On 28 January 2016, it was announced that Robi and Airtel Bangladesh will merge in Q1 2016. The
combined entity will be called Robi, to serve about 40 million subscribers combined by both
networks. Axiata Group will own 68.3% share, while Bharti Group will own 25%. The remaining
shares will be owned by NTT DoCoMo.

But Airtel is less strong relative to the other competitor of the telecom industry of Bangladesh.
Because its last two year‘s subscribers are decreasing and it couldn‘t make enough profit to run their
business operation in Bangladesh.
1.3 Background of the Study

Graduates from the faculty business studies, University of Dhaka have to take part in and
complete one month project program with the purpose of learning how to do analysis
practically from the theoretical knowledge gained so far as a business education. It is an
immense pleasure for us to get practical experiences of the theoretical knowledge that we
have gathered in our four years Undergraduate life. To gather practical knowledge on a
specific subject a research should be done. I have done my project in merger and accusation
analysis. The topic of my project paper is ―The recent challenges of the telecommunication
sector in Bangladesh: Robi-Airtel merger‖

Two telecom operators Robi Axiata ltd and Bharti Airtel are going to merge their business
operation in Bangladesh within 2 months. The merger talks stated from September 2015. This
will be the highest in amount and most important merger that ever happened in Bangladesh.
Robi will experience a lot of challenges, opportunities for their stakeholders. This merger will
generate positive or negative impact on the full telecom industry of Bangladesh. There are
also a lot issues to emphasis on such as employee decision, executive compensation and
many more.

1.4 Problem Statement

As I mentioned in the background Robi and Airtel are going to merge business operation in
Bangladesh and start with name Robi. Here main objectives of my study are to find out the
future impact on the telecom industry of Bangladesh because of this merger. There is another
important question, why Robi is interested about this merger and are there any hostile
approaches? What will be the competitor operation to the merger and what will they react to
this merger?

1.5 Objectives of the Project

 What are the major objectives and benefits of this merger?


 What will get the ultimate customer of the telecommunication sector of Bangladesh
from this merger?
 Will this merger help Robi to compete with market leader Grameenphone?
 To find whether the merger will develop the telecommunication sector of Bangladesh
and what extend.
 What are the major opportunities of this merger that will help two companies to
develop a good customer satisfaction?
 What are the major threats that have significant effect on this merging company?
 Will this merger add additional value to their customers?
 How competitor will react to this revolutionary telecommunication merger?
 How stakeholder will react to this merger?
 Are there any hostile approaches by Robi?
 What are the major legal obstacles that will face Robi in case of merging?
 Are there any ―Poison pill‖ and ―Golden parachute‖ applied by Airtel to discourage
Robi from merging?

1.6 Scope of This Project

This project will help me to gather a lot of practical information related to the
telecommunication sector of Bangladesh and also lead me how to analyze these data base on
future objectives and goals. The main purpose of the project is to allow the students to gain
practical experience of the theoretical courses learned. This credit course is required to be
completed by all students graduating under department of Accounting and information
systems at university of Dhaka. I will prepare this report as a partial fulfillment of the
Bachelor of Business Administration (BBA) program under the supervision of Assistant
Professor Md. Mazharul Anwar. This project is the outcome of the one month long thesis
program at AIS.

1.7 Expected Outcomes of the Project paper

Here I assure that I can find out the real motive of two companies for merging. A lot of issues
about this merger like subscribers mobilization, network coverage, spectrum transfer, and cell
tower establishment etc. The objective of this project is to find and assess a future merger
opportunities and threats. What strategy actually should follow to make a merger more
effective and efficient? What is the system that makes a merger more logical to
telecommunication industry like Bangladesh?
1.8 Limitations of the Project

As this merger issue is a hot topic of the telecommunication sector of Bangladesh. All the
necessary documents and information are confidential now and I don‘t have a lot of data to
analysis deeply. I will gather primary data from their annual report and financial statement
also from various electronic media and newspaper.

1. I did analysis on pre-merger situation; post-merger case can be different.

2. Here I predict some situations that can be different after merger.

3. The merger issue is a top secret for the general people and there are no enough
sources of data.

4. Bureaucratic process will lead it lengthier.

5. The secondary data source is limited.

6. The merging company may not disclose their ultimate goal of the merger.
The approach to the project will be described by methodology section. In order to enable a
critical review of the credibility of the final results, I described the process of the gathering
and compiling information for the project work as clearly as possible. The nature of the
investigation, its purpose and problem statement choose the ultimate methodological
approach of the project. The main approach was determined by the guidelines for work. The
problem statement and purpose of the project was established in the beginning. It has guided
the work from collection of information to analysis of findings in relation to theory and
application.

2.1 Literature Review

Telecom industry is the one of the most growing sector in Bangladesh. Everyday more than
five hundred subscribers enter into this industry. People are seeking for new and convenient
service now with lower cost. The demand for the internet is old here and subscribers want a
flexible data and speedy communication to send their feelings and hope. The total number of
mobile phone subscriptions has reached 121.860 million at the end of January 2015 according
to the Bangladesh Telecommunication Regulatory Commission and 51.453 million people
use mobile internet for their communication.

Most of the research starts with literature review that is the early studies of that research
topic. The studies include books, Journals articles, and online pages for example government
website like BTRC, corporate website and catalogue like Robi Axiata Ltd and Bharti Airtel
Ltd, investopedia websites. I have completed the literature search related to the research topic
to support and direct the research. The search was mainly conducted in the University
database, Journal database, Library journals, Websites and Text books. I have enriched my
literature about merger from two good books ―Applied Mergers and Acquisitions‖ by Robert
F. Bruner and ―Mergers and Acquisitions: Mergers and Acquisitions Guide to Understanding
Mergers and Acquisitions and Profiting from Mergers and Acquisitions‖ by John McQuilkin.
Since two telecom operators have not merged yet and the research related to the Robi-Airtel
merger is totally new topic, a lot of issues are there to analyze further. I have analyzed Robi‘s
future opportunities and threats by this research and I also proposed some theories here for
deep understanding. I think reader will be benefited by this research to do further research
after completion of the merger.

2.2 The Research Process


The research is conducted to answer those questions mentioned in the objectives section. A
lot of issues like hostile takeover, poison pill, golden parachute, legal obstacles were
considered when doing the research process. Based on research methods I grouped this
process into two basic types.

2.2.1 Quantitative Research

Quantitative research process basically includes numbers and figures like tables, graphs,
hypothesis test and etc. In order to identify and analyze the pre-merger and post-merger
conditions I surveyed market position by semi-structured questionnaire with 12 questions
from 100 subscribers sample from random population. This questionnaire helped me to get a
specific response which can be presented briefly to understand the estimation. Mail, personal
interview, telephone interview can be methods to conduct this kind of information collection.

2.2.2 Qualitative Research

Qualitative research is all about the analyzing the theories and going to a meaningful
conclusion. First of all I analyzed the reason behind this merger and what incentives drive
Robi to merge their operation with Airtel. I analyzed a lot of theories about some of the
leading merger like LafargeHolcim merger and some merger in Bangladesh like Beximco and
Padma textile. I did SWOT analysis of this merger from every aspects. I also analyzed their
market position before merger and assess what will be the market position of Robi after
merger.

2.3 Search for Empirical Information

To gather empirical information I have searched two companies financial statement and last
year data. I also collect speech from the chief executive officer of Robi and Airtel. Two
types of data are needed for empirical information that is primary and secondary data.
2.3.1 Primary Data

I have collected primary data to answer my own formulated research questions. I used main
method for collecting primary information by sending email with open questions to
responsible officials from the company and also to the Telecom regulatory board of
Bangladesh. The main reason for choosing this method is that the information related to
merger is confidential. I tried to understand the current situation of the market of two telecom
operators through questions. Some questions may not have direct connection with the
theories but were necessary to understand some critical situations. I have sent emails to the
following person for primary information and the following questions have been used for
gathering primary data. Dr. Shahjahan Mahmood, Chairman, BTRC.

2.3.2 Secondary Data

Secondary data are those data that has been collected by others for a completely different or
little similar to this research problem. Some research questions can be answered only by
secondary data but there are possible risks as those data were collected for a different purpose
and can be biased. I conducted this project base on strategic point of view to evaluate
acquirer‘s future opportunities and growth. I also analyzed its financial statement data for
secondary purposes. But both primary and secondary data will be used to develop a
comprehensive research base. Secondary data has collected from sources including.

 Annual report
 Journals and articles etc.
 Personal interviews
 Websites

2.4 Analysis, Conclusion and Recommendation


In the analysis part I wanted to show the physical, capital, revenue and profit base analysis. I
also compare two operators investment with revenue and net profit. I also did survey analysis
of Robi and Airtel subscribers for the deep understanding. In conclusion part I will show the
result that can be happened after merger and I also suggest some recommendation for Robi to
resolve some important weakness and threats.
3.1 Bangladesh Telecom Market

Telecommunication sector is one of the most growing sectors of Bangladesh. According to


Bangladesh Telecommunication Regulatory Commission, As of December 2015, the total
number of subscribers is over 133.72 million where population of Bangladesh is about 160
million (with an annual growth rate of around 1%) and taking into account the addressable
market of the population pyramid (excluding children). Over the last four years, the
compound monthly growth rate of the total subscribers in Bangladesh is almost 1% and we
have seen on average over this period more than a million subscribers were being added to
the market every month. As per December 2015, six operator‘s total subscribers and
percentage of total market is given below.

4.143m, 3% 1.007m, 1%
10.71m, 8%

28.317m, 21%
56.679m, 42%

32.865m, 25%

Grameenphone Banglalink Robi Airtel Teletalk citycell

Here we see that Grameenphone capture 56.679 million subscribers which is 42% of total
market and with 32.865 million subscribers Banglalink hold the second position in the
market. It is an impressive growth rate that is example of mobile technology‘s affordability,
product diversity, ease of adoption, and of course the desire for society to use mobile
technology. Another important point is that the use of mobile internet is increased to 51.453
million at the end of the December 2015. Moreover, such a high growth rate cannot be
sustained indefinitely because only a fraction of the population has multiple mobile
subscriptions. However, the growth rate for mobile subscriptions is bound to slow in the
coming years though Bangladesh was the first South Asian country to adopt cellular
technology back in 1993 by introducing Advanced Mobile Phone System (AMPS).

3.2 Market Position of Robi Axiata Ltd

Robi Axiata Ltd is the third largest telecommunication operator in Bangladesh with 28.317
million subscribers according to the Bangladesh telecommunication regulatory commission
in December 2015. With 25% market share Robi earned Tk 4942 million revenue and Tk 440
million profits in 2013-2014 fiscal year. Robi Axiata Ltd has 16% YoY growth in last fiscal
year and emerged as second largest revenue market share. The existing ownership/equity
structure of Robi is given below.

Sl. No. Name of shareholder Group % of share holding

1. Axiata group Berhad Axiata 91.6%

2. Axiata investment(Labuan) Ltd

3. NTT DoCoMo Ltd

4. Neasden Assets Ltd


NTT DoCoMo 8.4%
5. Ephraim Assets Ltd

6. Calamint Investments Ltd

7. Thurso Investment Ltd

Total 100%

Table 1: The existing ownership/equity structure of Robi

Robi is the first telecommunication operator to launch 3.5G Network in Bangladesh. The
major competitive factor in 2014 was 3G business that played an important role for network
rollout, new product innovation, and tactical campaigns. It was a critical situation for all
operators to keep the growth momentum. There was market hype on 3G services and Robi
had to monetize on this opportunity in order to maximize return on investment.

Subscribers fluctuation(Million) 56.679


60
51.504
47.11
50
40.021
36.49
40
28.317
30 25.38 25.289
21.039
16.139
20
10.71
6.026 7.051 8.269 7.505
10

0
2011 2012 2013 2014 2015

Grameenphone Robi Airtel

From above graph we see that the subscriber of Robi is tend to upward from 2011 to 2013,
But in 2014 Robi lost small portion of subscribers about 0.091 million. In December 2105
Robi had 28.317 million of subscribers.

Table 2: World Business Times, February 28, 2015

From above table we see that during its last five year Robi‘s revenue is constantly uprising
but in case of profit after 2007 Robi did not make enough profit and in 2008 and 2011 Robi
made loss Tk113 and Tk83 crore consecutively. But after launching 3G Robi made profit of
Tk 365 crore in 2013, 440 crore in 2014, which is positive notion to the market capturing.
Joint ownership structure of Robi consists of two investors one is Axiata Group Berhad and
the other is NTT DoCoMo Ltd from Japan.

3.3 Market Position of Airtel Bangladesh Limited

Airtel Bangladesh Ltd is the fourth largest telecommunication operator in Bangladesh with
10.710 million subscribers in December 2015 according to BTRC. Airtel build a strong
customer satisfaction to the young customer and gives a wide variety of product and services
plan for all subscriber. Airtel is a popular telecom brand among the youth and earn a good
portion of the revenue from this class. But in recent fiscal year Airtel did not diversify their
network and 3G service, for this reason Airtel fails to captures the internet market and lost a
good portion of their revenue. The present ownership/equity structure of Airtel is given
below.

Sl. No. Name of shareholder Group % of share holding


1. Bharti Airtel Holdings (Singapore) Bharti Airtel 100%
pvt. Ltd
2. Mr. Sunil Bharti Mittal
3. Mr. Ajai puri
Nominee
4. Mr. Monoj Kumar Kohli
shareholders of
5. Mr. Devendra khanna
Bharti Airtel
6. Mr. Prasanta Das Sarma
Total 100%

Table 3: The ownership/equity structure of Airtel

Airtel also failed to give good network coverage for the mass customer that have a negative
effect on their revenue and profit. For that reason Airtel is considering a merger with Robi
Axiata Ltd for operational efficiency and better customer services.
Subscribers Growth Rate of Airtel Bangladesh Ltd

Years 2011 2012 2013 2014 2015

Growth Rate 102% 52% 17% 0.27% 16%

From above table we see the subscribers‘ status of Airtel Bangladesh Ltd; we see that in 2014
Airtel subscriber‘s growth went to very negligible level. This is why Airtel is anxious about
their future possibilities, in last two fiscal years Airtel has a small amount of profit, it may be
an important reason for merger.

3.4 Comparative Analysis of Robi and Airtel

Started operations in 2010, by


Started operations in purchasing 70% stake of
Bangladesh in 1997 with Warid Telecom for 300 million
the brand name AKTel US$

Number of employees are


Number of employeees
above 487
is above 1600

Annual revenue is about Annual revenue is less


TK 5000 crore than 1400 crore
Total spectrum is Total spectrum is 20MHz
19.8MHz

More than 6000 cell towers Around 4000 cell towers


3.5 The main Objectives of The Merger

According to the chief executive officer (CEO) of Robi, said: ―The highly competitive and
crowded Bangladesh telecommunications sector solicits consolidation and we believe this
merger will form greater economies of scale for both Groups. Additionally, it will result in
shared investment capacity of the leading two industry players to optimize strategies and
deliver enhanced value to consumers, benefiting the industry at large.‖

Jamaludin Ibrahim, president and Group CEO of Axiata, said: ―In line with Axiata‘s merger
and acquisition strategy, in-country consolidation has been one of the Group‘s key focuses on
solidifying its position, unlocking profitability of the market and ensuring long-term growth.
Axiata‘s track record of successful strategic mergers and integrations in its other markets
such as Indonesia, Sri Lanka and Cambodia further qualifies the Group to lead the market
consolidation in Bangladesh.‖ According to the Gopal Vittal, managing director and CEO
(India and South Asia), Bharti Airtel, said: ―There is a compelling rationale for bringing
together the strength of both entities. The combined entity will be well-positioned to leverage
the operational synergies to serve customers better with world-class services and contribute to
the growth of the telecommunications sector in Bangladesh.‖
3.5.1 Operational synergy

Synergy is the magic force that allows for enhanced cost efficiencies of the new business.
Synergy takes the form of revenue enhancement and cost savings. By merging, Robi and
Airtel hope to benefit from the following:

 Economies of scale - Yes, size matters. In case of purchasing advance technology, a


bigger company can save more on costs. Robi-Airtel merger support them with
improved purchasing power to buy equipment or advance technology like 4G internet.

 Staff reductions - As every employee knows, mergers tend to mean job losses.
Consider all the money saved from reducing the number of staff members from
accounting, marketing and other departments. But in case of Robi-Airtel merger it
BTRC imposed condition on staff reductions.

 Acquiring new technology - To stay competitive, Robi need to stay on top of


technological developments and their business applications. By merging with a
smaller company with unique technologies, a large company can maintain or develop
a competitive edge.

 Improved market reach and industry visibility – Robi and Airtel want to merger to
reach new markets and grow revenues and earnings. A merge may expand two
companies' marketing and distribution, giving them new sales opportunities. This
merger can also improve a company's standing in the investment community; bigger
firms often have an easier time raising capital than smaller ones.

3.5.2 Optimized Strategy

After amalgamation two operators can develop a combine strategy on diversified products,
cost reduction, Service integration and advance technology use. For providing quality service
to their subscribers Robi and Airtel can develop new strategy easily with lower cost.

3.6 Probable Market Position of Robi after Merger

After completing the merger, Robi Axiata Ltd will hold 68.3% controlling stake in the
combined business entity while Bharti Airtel will be 25%. NTT DOCOMO of Japan will hold
the remaining 6.7% stake from existing shareholders. According to a statement of Robi, the
combined entity operating as Robi will serve approximately 40 million customers. The joint
strength of Robi and Airtel will deliver the widest mobile network coverage across
Bangladesh, strengthening its position in the mobile internet segment as well as consolidating
its position as the second largest operator in the country.

 Robi will be a telecom operator with subscriber base of over 38 million and market
share of 29%.
 This subscribers and market share will put it in the second position in the market after
Grameenphone.
 After merger Robi Axiata Ltd will acquire 39.8MHz with 17.4MHz in the important
1800MHz band. Currently Grameenphone has the highest spectrum MHz band in
Bangladesh.

The joint venture will facilitate the government vision of Digital Bangladesh and drive
Foreign Direct Investments (FDI) into the country, according to the statement issued by Robi
Axiata Limited. The proposed ownership/equity structure post-amalgamation upon the
approval of the merger scheme by shareholders of Robi and Airtel will be.

Sl. No. Name of shareholder Group % of share holding


1. Axiata group Berhad Axiata
2. Axiata investment(Labuan) Ltd
3. NTT DoCoMo Ltd Shares to be diluted.
4. Neasden Assets Ltd Not less than 75% less
5. Ephraim Assets Ltd NTT DoCoMo one share.
6. Calamint Investments Ltd
7. Thurso Investment Ltd
8. Shareholders of Airtel Bharti Airtel Not exceeding 25%
plus one(1) share
Total 100%

The merger will strengthen long-term sustainability of Bangladesh telecom landscape and
market structure, secure faster nationwide roll-out of mobile broadband and contribute
significantly to the overall economy and revenue of the country, the statement added. The
telecommunications landscape in Bangladesh has been one of high-growth, but intensively
competitive with six players. Industry insiders said the merger is set to strengthen the
industry structure, competitiveness and, more importantly, bring greater benefits to customers
in terms of network quality and coverage and an improved offering of data products and
services. Axiata is one of the largest Asian telecommunications companies. It has controlling
interests in mobile operators in Malaysia, Indonesia, Sri Lanka, Bangladesh and Cambodia
with significant strategic stakes in India and Singapore.

The Group, including its subsidiaries and associates, has over 260 million mobile subscribers
in Asia. The Group revenue for 2014 was RM18.7 billion. Bharti Airtel Limited is a leading
global telecommunications company with operations in 20 countries across Asia and Africa.
The company had over 346 million customers across its operations at the end of November
2015.
3.7 Rationale for and Synergies from Transaction

Superior Experience and Enhanced Choices for Consumers while Strengthening Competitive
Landscape.

 Delivering the widest network coverage and superior mobile internet experience to 40
million customers.
 Creating a wider sales and distribution reach through the most extensive channels that
will be supported by the largest network of customer service centers across the
country.
 Rewarding customers through lower within-network (on-net) call rates by being part
of the 40 million-strong customer base.
 Facilitating availability of internet access across Bangladesh and improving
affordability of mobile services through the enhanced scale of combined operations.
 Facilitate Government‘s vision of Digital Bangladesh and drive Foreign Direct
Investments (FDI) into Bangladesh.
 The proposed merger will strengthen the long-term sustainability of the Bangladesh
telecom landscape and market structure, secure faster nationwide rollout of mobile
broadband and contribute significantly to the overall economy and revenue of the
country.
 Improved mobile data and broadband services will have a multiplier effect on
productivity of the economy, local adjacent mobile and allied services eco-system,
and drive new FDIs towards other sectors as well Improved Scale of Operations
Leading to Better Business Viability and Shareholder Returns.
 Improving the cost of operations and business viability that will lead to greater returns
to the shareholders resulting in the ability to further invest towards expansion of
telecommunication services across the country.

3.8 Approaches to the Merger

A hostile takeover is a type of corporate acquisition or merger which is carried out against the
wishes of the board (and usually management) of the target company. Here one question is
appeared whether Robi has taken any hostile activity to acquire Airtel? But we see that both
Airtel and Robi applied to BTRC for merging their operation in Bangladesh.
3.8.1 Poison Pill
A strategy used by corporations to discourage hostile takeovers. With a poison pill, the target
company attempts to make its stock less attractive to the acquirer. There are two types of
poison pills- flip-in and flip-over. Flip in allows existing shareholders (except the acquirer) to
buy more shares at a discount. In this case we did not see such act by Airtel because of
voluntary merger.

3.8.2 Golden Parachute


Golden parachute is giving substantial benefit to existing employee such as CEO, directors,
managers and general employee of the company. Moreover Airtel is suffering from a
significant decrease in their revenue and profit in recent years. If Robi apply any hostile
approach they may pursue golden parachute to discourage Robi, but in real sense Airtel is
willing to be merged.

3.9 Legal and Others Obstacles

Robi and Airtel started their merger talks at end of the September 2015 and submitted their
joint merger application to the BTRC. A high court branch gave eight weeks to the
government telecom regulator to come to final decision on merger on 25 January 2016. There
are a lot of obstacles that will face by Robi and Airtel in the course of action that may be
legal obstacles, government obstacles, obstacles from regulatory body, and obstacles from
competitor, stakeholders, and customers.

3.9.1 Legal obstacles

There is an issue in case of merger deal, whether Airtel will transfer its spectrum to Robi and
Does the merger constitutes a transfer of spectrum. But According to the Bangladesh
Telecommunication Act-2001 Spectrum is not transferable. Section 55(4) says about
spectrum ―A license issues or a frequency allocated under this section or the right to use such
license or frequency shall not be transferable, and if any such transfer takes place it shall be
void‖ Airtel can transfer is spectrum in the way of canceling the existing license of Robi and
Airtel and issue a new license to the new entity.
On the other hand there must be an approval from Bangladesh Telecommunication
Regulatory Commission form merger deal. According to section 37(3) ―where it states that
prior approval to BTRC is required in such event‖ According to Telecom Act 2001, Public
hearing and its procedure- (1), if the commission, on the basis of an application or other
information, is of the opinion that in the public interest a public hearing on a matter relating
to the exercise or proposed exercise of its power or on any other matter is necessary, it may
hold public hearing.

3.9.2 Obstacles from Regulatory Body

Bangladesh Telecommunication Regulatory Commission (BTRC) already imposed some


conditions on the merger. The main conditions are given below.

 No reduction in work force. BTRC gave this condition after their merger application.
Robi has to comply with that the current employees who are working in Robi and
Airtel now will not be fired because of merger deal.
 Robi will have to take financial responsibility for Airtel‘s liability. Airtel does not
report its profit/loss separately and Airtel Bangladesh Ltd & Bharti Airtel of Sri lanka
has had losses in recent years.
 BTRC also gave a condition that entity must have telecom ministry‘s approval also
Pri-minister ICT adviser asking BTRC to seek public opinion on merger.

3.9.3 Government Obstacles

 Government may delay the decision making on merger because of bureaucratic and
other purposes.
 Government may delay the merger deal to have the auction first to gain more revenue
from auction.
 BTRC wants to take opinion from other operator before public hearing but this will
make merger lengthier.
 If merger reduce competition that will ultimately not benefit consumer then
government may take other decision.
4.1 Subscribers portion in survey

Citycell
subscribers
0%

Teletalk Grameenphone
Grameenphone
26% 21%
Banglalink Banglalink
14% Robi
Airtel
Robi Airtel
23%
16% Teletalk
Citycell

4.2 Reason for using current operator by subscribes

Why people are using their current operator?

Because of lower call rate


20%
39%
Because of powerfull and
15% wider network coverage
Because of cheap internet
26%
Because of friends and family
uses
4.3 Do you think this a hostile takeover by Robi?

Approach

16%
Yes
No

84%

4.4 What do subscribers expect from this merger?

Subscribers Expectation

2%
Better and Quality services
24%

Lower call rate and cheaper


54% internet
20% Strong and wider netwok
coverage
Nothing
4.5 Do you think that this merger will develop the telecom
industry of Bangladesh and what extend?

Development
14

12

10

0
High Development Average Less No Development
Development Development Developnment

4.6 Do you think Airtel will be benefitted by this merger


and what extend?

Benefit

12

10

0
Highly Benefitted Average Less Benefited Harmful
Benefitted
4.7 Why Robi is going to merger with Airtel?

Objective

For More Revenue and


34% 26% Profit
For operational Synergy
10%
To Reduce the competition
30%
To Compete With Merket
Leader Grameenphone

4.8 Poison Pill and golden parachute are strategy used by


target to discourage hostile takeovers. Do you think Airtel
should use these strategies?

Poison Pill Golden Parachute


Yes No Yes No

35% 39%
65%
61%
4.9 Will this merger add additional value to their
customers and what extend?

Value Added

160

140

120

100

80

60

40

20

0
Best Value High Value Average Value Less Value Worst Value
5.1 Strength of Robi-Airtel Merger.

 Robi Axiata Ltd will be the second largest telecommunication brand with 38 million
subscribers and 29% market share.
 Robi can use 39.8MHz spectrum with 17.4MHz in the important of 1800MHz.
 Merger will enable Robi to further invest in next generation technology.
 As a result of merger subscriber will experience better user experience such as better
voice quality, less drop calls, faster data rates.
 Merger will reduce cost for consumption and business.
 Acquirer Company can give their subscribers with better network coverage.
 Merger will be the additional economics of scales for both entities.
 After merger Robi can dominant the market and able to generate strong organization.

5.2 Weakness of Robi-Airtel Merger

 Acquirer Company cannot afford too much customer with better service because of
lower efficiency.
 Lack of efficient employees may be another important issue. It will hamper Robi to
make a better position in the market.
 Too much employee can be a burden for Robi to manage effectively.
 In many ways the problem associated with trying to make merger companies work are
all too concrete.

5.3 Opportunities of this Amalgamation

 Greater expansion ability will give additional scope to the entity without any capital
expenditures.
 Airtel can survive by this merger because only big player will survive in more
competitive world.
 Widest network coverage and superior mobile internet can make the merger fruitful.
 Creating a wider sales and distribution reach through the most extensive channels
 Proposed merger will strengthen the long term sustainability and market structure.
 Improving cost of operations and business viability that will lead to a greater return.
 Cost advantage through technical economics.

5.4 Threats Available in this Merger

5.4.1 Internal Threats


 The monetary value of target can be too high to afford by Acquirer Company.
 Terms and conditions make a merger more complex to work because two third of big
merger will disappoint on their own term, lose value in the stock market.
 Cultural and strategy difference make merger unfruitful.
 Change in working environment may shrink productivity.

5.4.2 External Threats


 After merger competitive environment will decrease in the telecom industry and
operators may try to make more profit by syndicate.
 Bureaucratic procedures can make merger more complex costly.
 If 39.8MHz is too much for one operator, here government can add other condition.
 Competitor may take some bad competitive environment for telecom industry.
 The legal obstacle can make it lengthier.
 Government may impose some extra regulation on the business, and then merger can
fail.
 Merger can create an oligopolistic situation in the market.
6.1 Network and Services Amalgamation
 Joint strength of Robi and Airtel will give additional scope to construct exclusive
portfolio of mobile network system.
 The merger will support the entity with greater leverage & expansion and meeting the
government expectation of digital Bangladesh.
 Enhancing technology let the entity to provide mobile broadband speed at master
level.
 Robi will be able to give innovative product & services and enhanced customer
service.
 After merger both company‘s talent and experience shall be put to optimum use in
providing service to valued subscribers.

6.2 Spectrum utility

After merger the entire spectrum assigned to Airtel and Robi shall be used by amalgamated
entity (Robi) as part of assets.

After merger spectrum of Robi will be 39.8 MHz with 17.4 MHz in the important 1800MHz
band. Grameenphone Ltd now hold 32MHz with 14.6 MHz in the 1800 MHz band. Currently
Grameenphone has the highest spectrum band in the telecom industry of Bangladesh. Here
government decision on spectrum will be the import issue of this merger.
6.3 Numbering Plan
Merging Entity, Robi will take necessary changes without any cost of current customer.
Airtel subscribers will continue to use MSISDN prefix of 016 (mobile operator code) and
new issue of Airtel SIM will be stop after 3 years from amalgamation.

6.4 Transition of Airtel subscribers to Robi

Two operators assure that the transition process to implement and effect the aforesaid merger
shall in no substantial way adversely impact the subscribers nor cause in any major disruption
of services to on joint customer. After merger Robi will comply fully with its licensing
condition, as Robi endeavored to do and to continue to comply with the regulatory
requirement.

6.5 Potential Risks for Robi


 Cost of merging may be too high to afford by Robi and it can be a burden because
BTRC gave a condition to take financial responsibility for Airtel‘s liability.
 After merger Robi have to develop and restructure the new and existing job position
but that may create a lot of complexity.
 Mobile number portability (MNP) will create subscribers lighter, subscriber behavior
of using mobile operator will change and it will also effect this merger.
 Ineffective and inefficient use of spectrum will make this merger as a burden for
Robi.
 Robi need to transfer and manage its cell tower because of identical coverage service.
But in real sense transfer of existing cell tower will cost a huge amount of other cost.
 Improper use of spectrum can make this merger fail and unsuccessful.
Bangladesh Telecommunication Regulatory Commission (BTRC) organized the hearing at its
conference room in Dhaka yesterday under Telecommunication Act 2001. All other four
telecom operators of Bangladesh give their opinion about Robi & Airtel merger in public
hearing. In public hearing on merger agreement between mobile phone operators Robi and
Airtel, most opinions came in favor of the deal. However, two organizations- the Consumers
Association of Bangladesh and Bangladesh Mobile Recharge Association-vehemently
opposed the merger, saying it will seriously impact the industry as well as employment.
BTRC chairman, Shahjahan Mahmood assured the participants that because of merger there
would be no job cut. He said BTRC would make final decision on the merger deal after
getting report of a market impact survey.

―As there is no guideline on merger, the regulator will have to take decision based on public
hearing, market study impact report, opinion of other four operators and recommendation of a
high-level BTRC committee,‖ he said. Mr. Mahmood also said completion of the merger
would depend on four matters – survey results, opinions of other operators, suggestions from
the public hearing and decision of the court. He added the two operators already assured the
regulator that they would not lay off any employees. Didarul Alam, a general manager of
Robi, said the merger would stimulate competition, and subscribers would get better services.

Consumers Association of Bangladesh (CAB) representative Barrister Anik R Haque told a


public hearing that the merger would leave 96 percent of the market share in the hands of
three operators. He questioned whether the mobile-phone market would remain competitive
and if the operators would give due attention to the subscribers in such a situation.

Robi-Airtel merger move in Bangladesh will be a milestone for the telecommunications


sector of the country. Globally, it has been proven that larger players contribute more and
thus one should consider this merger with a positive mindset. Let us assess the outcome and
expectations from this merger from the perspectives of- impact on the internal workforce,
impact on the brand value of the service provider, impact on the competition, and last but
perhaps the most important, impact on the consumers.

The merger has the opportunity to move up the ladder and focus on becoming an innovator
and market leader rather than being a creator of ‗me-too‘ products. Merger will result in
economics of scale and greater penetration through unification of diversified market. If
everything goes in right track then subscribers of Bangladesh telecom industry are going to
meet with existing Robi with better service and world class innovation.
Appendix 1: Application to BTRC chairman.

16 February 2016
To
Chairman,
Bangladesh Telecommunication Regulatory Commission.
IEB Bhaban (5,6 & 7 floor). Ramna, Dhaka-1000
Subject: Permission for accessing the information for the academic research project.
Sir,
At the outset, I would like to acknowledge your cooperation in the field of our academic
research project in the past. I am a student of Accounting and information systems,
University of Dhaka. As per our curriculum of BBA, I have to submit research paper on
specific topic. Here my topic is about Robi-Airtel merger. May I take the opportunity to
solicit your further cooperation with some required information about this topic?
1. What will get the ultimate customer of Bangladesh from this merger?
2. What are the main objectives of the merger?
3. What will be the position of Airtel's current employees, whether they will be fired or not?
4. What will happen to 016/Airtel existing subscribers by result of the merger?
5. is it a voluntary merger and is there any legal obstacle from BTRC?
6. Is there any act of "Golden parachute" or ―poison pill" by Airtel‘s employees?

I would request you to give some information in earliest convenience to support my research
project.

Sincerely yours,
Tarek Mahmud

ID: 18147, 18th Batch, section: B

Department of Accounting and Information Systems

University of Dhaka
Appendix 2: Questionnaire for Survey
1. ―Mergers and Acquisitions: Mergers and Acquisitions Guide to Understanding Mergers
and Acquisitions and Profiting from Mergers and Acquisitions‖ by John McQuilkin

2. ―Applied Mergers and Acquisitions‖ by Robert F. Bruner.

3. ―A Study of Bangladesh Telecom Market‖ Authors: Group 2011- Rana Alamgir, Nitin
Anand, Supervisor: Professor Jan Löwstedt.

4. Robi-Airtel merger favoured by most in public hearing - Tribune Report in february 18,
2016

5. Robi-Airtel merger sparks mixed reactions- February 20, 2016 by Star Business Report.

6. BTRC holds public hearing over Robi-Airtel merger- 17 Feb 2016 by The Financial
Express.

7. Robi-Airtel merger — a step forward by Syed Ferhat Anwar. The writer is a professor of
IBA, Dhaka University. syed.ferhat.anwar@gmail.com

8. Telcos welcome Robi-Airtel merger - Concern surfaces over spectrum, telecom numbering
schemes by Star Business Report in 12:00 AM, February 09, 2016.

9. BTRC to hold public hearing on Robi-Airtel merger on Feb 17 by Senior Correspondent,


bdnews24.com , Published: 2016-02-01 01.

10. February 12, 2016, Tarana: Approval to Robi-Airtel merger awaits public hearing by
Tribune Report.

11. January 26, 2016 ―HC gives eight weeks for Robi-Airtel merger decision‖ Star Business
Report.

12. Published: 05 Feb 2016, ―Airtel-Robi merger to be 'credit positive': Moody's‖ The
Financial Express.

13. December 25, 2015 ―Joy asks for public hearing on Robi-Airtel merger‖ by Muhammad
Zahidul Islam @ Thedailystar.net

14. ―Mobile Phone Subscribers in Bangladesh December, 2015‖


http://www.btrc.gov.bd/content/mobile-phone-subscribers-bangladesh-december-2015

15. ―Company Profile‖ https://www.robi.com.bd/corporate/company-profile/?lang=eng

16. About Airtel- http://www.bd.airtel.com/about-airtel

17. Google form: Questionnaire on robi airtel merger - http://goo.gl/forms/MeFJx95lfS