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India seeks foreign cash for $30 b phone bill

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CIOL Bureau
New Update

Shailendra Bhatnagar

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NEW DELHI: India's telecoms industry is up for sale.



With the country needing $30 billion to meet a target of one phone for every five people by 2010, the government has agreed to let foreign companies with deep pockets buy majority stakes in telecoms operators.

The decision to raise the foreign investment limit to 74 percent of a company's equity from 49 percent is expected to spur a fresh round of mergers and takeovers in the world's fastest growing mobile market.

"The government is clearly signaling that it is looking for investments and global carriers will definitely take notice," said Arpita Pal Agrawal, a telecoms consultant at PricewaterhouseCoopers.

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Some foreign operators have already staked their money on the potential of a country that aspires to be an industrial powerhouse yet has only two phones for every 25 people.

Singapore Telecommunications owns 28 percent of Bharti Tele-Ventures Ltd., India's top listed mobile services firm. Hong Kong's Hutchison Telecommunications International Ltd. owns 42.34 percent of its Indian wireless unit Hutchison Max Telecom Ltd.

Only a day after the government raised the investment cap on Feb. 2, Aircel Televentures Ltd., a mid-sized Indian firm, said it had signed a non-binding pact to sell a 49 percent stake to Russia's AFK Sistema for $450 million.

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Singapore Technologies Telemedia Pte and Telekom Malaysia Bhd (TM) also said they would consider raising their combined 47.7 percent stake in Idea Cellular Ltd.

SURVIVORS

The telecoms sector has slimmed from more than 20 carriers to 11 in 2004 and analysts expect a second round of consolidation to whittle the field to between four and six over the next 15 months.

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Analysts expect the survivors to include Bharti, state-run Bharat Sanchar Nigam Ltd., Hutchison, Idea Cellular Ltd., Reliance Infocomm Ltd. and Tata Teleservices Ltd.

Likely takeover targets are state-run Mahanagar Telephone Nigam Ltd., which provides fixed-line and mobile services, and wireless operators BPL group, Spice Telecom Ltd., HFCL Infotel Ltd. and Shyam Telelink Ltd.

"We could see more players from Asia-Pacific and Europe coming in," said Prashant Singhal, head of telecoms practice at consultancy Ernst & Young.

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Investment bankers are keeping mum on the identity of any potential overseas buyers, but soaraway growth makes India a low hanging fruit for carriers facing saturated markets at home.



Cellphone users are increasing by between 3 and 5 percent a month, numbering 1.76 million in January alone.

The government hopes to have between 200 million and 250 million phone users by the end of 2007 compared with about 95 million now. Most of the growth will come from wireless users, who currently exceed 50 million and are expected to top 80 million by December.

Only about a quarter of the country has mobile coverage currently and the bulk of the money to expand networks into rural areas will have to come from overseas, said T.V. Ramachandran, director general at the Cellular Operators' Association of India.



"The increase in the limit will go a long way in helping the industry raise finances overseas and meeting the government's target of having more than 200 million users by 2007," he said.



HURDLES



Raising $30 billion may be a stretch, however. Over the past 15 years, since India opened up its Soviet-style socialistic economy, foreign investment in telecoms has amounted to only $2.3 billion.



And the increase in the investment limit comes with riders, such as Indians remaining a majority on the board.



Razor-thin profit margins are another barrier. With local call rates at about 2 U.S. cents a minute, the cheapest in the world, some mid-sized operators are not making enough money to cover their huge capital costs.



But such hurdles are unlikely to deter international operators looking beyond China because of the maturity of the telecoms market there and regulatory hurdles such as a 50 percent cap on foreign ownership.



"India is becoming a bigger growth story than China," said Agrawal at PricewaterhouseCoopers.

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