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Bharti Airtel to Buy Alcatel Stake

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According to The Economic Times, Indian telco Bharti Airtel is set to acquire complete ownership of its joint venture (JV) with Alcatel Lucent SA (ALU - Analyst Report). This joint venture primarily manages the fixed-line and broadband networks for Airtel. The financial terms of the deal were not disclosed.  

Bharti and Alctael had formed a 26:74 joint venture (Alcatel Lucent Managed Networks Service India) for five years (beginning in 2009 and through 2014). Bharti Airtel intends to operate as an independent entity, but moving forward, the company stated that it would invite other telecom operators for equity participation.  

We note that the decision comes shortly after its close rival Reliance Communications signed a similar contract with Alcatel for eight years.

It is believed that this strategic decision of acquiring the entire 74% stake is a part of the company’s business objectives, as Bharti Airtel is in the process of reducing outsourcing. Apart from Alcatel, Bharti has multi-billion dollar contracts with other big technology providers of the mobile network industry such as LM Ericcsson (ERIC - Analyst Report) and Siemens AG (Nokia-Siemens Network) (SI - Analyst Report).

Bharti Airtel mentioned that it is planning a new business model to manage its fixed line and broadband networks, similar to Indus Towers. Indus Tower was formed in 2008 by three telecom majors namely; Bharti Airtel, Vodafone India and Idea Cellular. These three companies had combined their physical infrastructure in 16 regions to form Indus Towers.

However, Alcatel is also not at a complete loss since it has been trying to exit certain outsourcing contracts. This is because, according to the company, just 25% of its total outsourcing contracts is profitable, which put tremendous pressure on its margins.

Alcatel carries a Zacks Rank #5 (Strong Sell).

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