Foreign carriers pound at India's telecoms door

Shailendra Bhatnagar

NEW DELHI: India's mobile telecoms firms, long ignored by global carriers battling on their home turf, are suddenly being wooed by Asian and Western companies seeking access to a huge untapped market.

Carriers in established markets where penetration rates are near the saturation point are salivating at India's growth, which adds 4.2-4.7 million net new mobile users a month. The country also offers the cheapest call rates in the world and a demographic bonanza, with about half of the billion-plus people below 25 years of age.

Those factors are spawning a flurry of deals.

"It's a land grab -- pure and simple," said Sara Harris, senior industry analyst at Strategy Analytics in London. "India is the last big, untapped market and everybody is rushing in with a knife, fork and spoon.

"The regulatory environment is getting much more welcoming to foreign investors," Harris said of the world's fastest growing mobile market.

Two deals were stuck on Friday: Telekom Malaysia bought a 49 percent stake in mid-sized Indian GSM firm Spice Communications Ltd., for $178.8 million. And sixth-ranked Tata Teleservices Ltd., an unlisted CDMA operator, sold a 7 percent stake to serial telecoms entrepreneur C. Sivasankaran for an undisclosed amount, an industry source said.

Two days earlier, Singapore state investment arm Temasek Holdings Pte. Ltd. bought a 9.9 percent holding in the same company in a deal that a source said was valued at $330 million.

India, which expects $22 billion in foreign investment commitments to the telecoms and IT sector in 2006, double last year's total, has relaxed foreign ownership limits in telecoms services firms to 74 percent from 49 percent.

Combined with galloping demand, the stake hike has helped boost valuations.

It has also brightened the prospects of Hutchison Essar Ltd., 49.6 percent owned by Hutchison Telecommunications International Ltd. The company plans an IPO this year to fund expansion.

THE PLACE TO BE

"There's going to be a strong demand for Hutch from fund portfolios who want to diversify telecoms holdings," said Deven Choksey, managing director at K R Choksey Shares and Securities. "A globally known brand and a footprint are all there."

The listing of second-ranked Reliance Communications Ventures earlier this month with an $8 billion price tag is also likely to provide a benchmark for Hutchison which currently has 15.8 million users, or an 18.5 percent market share.

In comparison, the country's biggest operator Bharti Tele-Ventures Ltd., in which UK-based Vodafone Group Plc. paid $1.5 billion for a near 10 percent stake in October, is valued at $16.7 billion.

"In many ways the Vodafone deal set a benchmark for the sector," said an investment banker.

"It showed the market had matured and it had world-class firms that squeezed out profit even when prices were falling.

"Valuations have gone up substantially -- easily 30-40 percent in a year because of many deals," the banker said.

In December Malaysia's Maxis Communications Bhd. took the lead in a joint $1.08 billion buyout of Aircel Ltd. And Reliance Chairman Anil Ambani has said many global firms have expressed an interest in picking up a stake in his firm.

Analysts say India's telecoms market is at an inflection point and resembles China in the late 1990s.

GREATER COVERAGE

A think-tank, the National Council for Applied Economic Research, says there are 220 million so-called "aspirers", those earning $2,000-$4,400 a year who want to have the latest consumer products.

"India has this huge middle class which has the money and is prepared to spend," London-based Harris said. "And it has been shown by operators like Bharti that you can still make money on very low tariffs."

Carriers are now spending billions of dollars expanding into rural areas where two-thirds of the people live.

"We should be in 5,200 census towns and up to 300,000 villages by then," said T.V. Ramachandran, director general at the Cellular Operators' Association.

By the end of 2007, he says, networks will cover 70 percent of the population and will be adding 6 million users every month.

With 85.4 million Indian mobile users now -- more than the population of Germany, the government expects 250 million phone users by the end of next year and of them 180 million will be using mobiles.

To soak up growth, handset majors are setting up shop. Nokia is scheduled to unveil a phone making unit at the weekend.