The telecom story continues to be exciting despite the impact of oil, inflation and high interest rates on company stocks. Valuations have been fairly attractive for those wanting to cash out. For example,

the Modi family, the promoters of the two-circle Spice Communications, are taking home Rs 2,176 crore for their 40.8% stake in the company, which they sold to Idea Cellular at a price of Rs 77.30 per share last month.

Anil Ambani, chairman, Reliance Communications, meanwhile, is working hard to cobble up a deal with South African firm MTN. He has been talking to them since end-May this year. Much depends on how the arrangement between the two is worked out to get past Anil?s elder brother Mukesh?s threat of legal action, who has been citing his first right of refusal in case of an equity dilution in Reliance Communications.

All this action, in a sense, implies that it is business as usual for domestic telcos despite high inflation, rising oil prices, high interest rates and political turmoil. Idea Cellular, for instance, has no plans to stop at the acquisition and consequent merger of Spice with itself. It intends launching services in areas like Mumbai where it?s not present. All of this is merely part of the larger story unfolding in telecom, though.

That is the shift in mindset of local players. No more are they restricted to the boundaries of India alone. They have their sights set abroad. This may not be visible in the case of Idea as of now, but sooner or later it will as it acquires the critical mass to do so, say observers. Already bigger rivals such as Bharti Airtel and Reliance Communications are training their sights overseas. Even state-run Mahanagar Telephone Nigam Ltd (MTNL) is not far behind here.

The Indian market?the second largest wireless market after China?has so far seen the entry of foreign telcos either by way of acquisitions (Vodafone?s acquisition of majority stake in Hutchison-Essar and Maxis? acquisition of Aircel) or financial investments (Singtel?s investment in Bharti or Telekom Malaysia?s investment in Spice).

Domestic mobile service providers hardly ventured abroad since the growth in subscribers was substantial enough for them to keep their focus on India.

The only players that did go overseas with an aggressive acquisition and investment policy were the network carriers. These include Tata Communications (earlier VSNL) and Reliance GlobalCom (earlier Reliance Flag Telecom). They have been shopping for international assets for some time now.

TGN, Teleglobe and Neotel are a few acquisitions wrapped up by Tata Communications in the past to beef up its business in wholesale voice and data services. Rival Reliance GlobalCom has acquired Yipes, Vanco and Du among other investments to strengthen its ethernet, managed services and WiMax operations. Both companies are not likely to stop here. Says Srinivasa Addepalli, senior vice-president, corporate strategy, Tata Communications. ?Global scale is required if you have to deliver wholesale voice and data services, which is why we?ve been seeking avenues of growth and expansion across markets.?

As global scale becomes imperative for companies on the mobility side of the business too, many are waking up to the potential of growth beyond Indian shores. Bharti and Reliance, currently at the number one and two spots in the pecking order of wireless subscribers with 69.38 million and 51 million users respectively, find it particularly important, even necessary, to do so. An international presence, say company executives, is required to move to the next level in the evolutionary cycle.

Both companies have chalked out a roadmap, which involves either merging (Reliance?s talks with MTN for a possible coming together), investing or acquiring telcos overseas (Bharti?s reported talks for buyout of Kuwaiti firm Zain or Reliance?s acquisition of a telco in Uganda). Not only inorganic, but also organic growth is high on their agenda. From time to time, both companies have been bidding for licences in foreign markets such as the Middle East, South Asia, etc. Some success has been achieved in this respect. These include Bharti?s impending launch of mobile services in neighbouring Sri Lanka, for instance.

MTNL has also bid aggressively for telecom licences abroad. It?s looking to increase its subscriber base in markets such as Mauritius and Nepal, where it launched services some two years ago. Says R S P Sinha, chairman & managing director, MTNL, ?We are restricted to the markets of Mumbai and Delhi in India. These are highly saturated markets. We need to grow, which is why global operations are important for us.?

As India nears the 300-million-mark in terms of total wireless subscribers, growth in average revenues per user or ARPUs are not likely to be significant. If anything, ARPU levels are likely to fall as operators target customers lower down the pyramid. Says Romal Shetty, executive director and head, telecom practice, KPMG, ?The ones who have the purchasing power have been targeted. It is the ones lower down the pecking order who will be targeted now.?

These subscribers are unlikely to spend heavily on value-added services, which is a key source of revenue for operators. Tariffs are anyway on the lower side in India. Now with the focus shifting to users down the rung, located mostly in rural areas, keeping tariffs even lower than what they currently are will be the norm.

?Though this will add volumes,? says an executive with a telecom company, ?It is likely to put company margins under pressure.? Anticipating this scenario, players such as Bharti and Reliance, who have the critical mass in terms of market capitalisation and subscriber numbers, are foraying abroad.

ARPUs in India are anywhere between Rs 280-300 for GSM operators and Rs 160-320 for CDMA operators. What?s more? By 2011-12, the Indian market is likely to get saturated as the next 250-300 million subscribers are added to the list. Players then would have to look beyond the shores of India at markets that have the subscribers as well as revenues to generate.

Says Sourabh Kaushal, industry manager, ICT practice, Frost & Sullivan, South Asia and Middle East, ?It?s a necessity if you ask me because the pan-India players have to still grow. If India doesn?t provide them the space to do so, then looking abroad for markets that will allow them to do just that will gain importance.?

This point is played down by telcos however. ?I don?t think you can write off the Indian market yet,? says Akhil Gupta, joint managing director and group director, strategy & business development, Bharti Airtel Ltd. ?There is enough growth possible here. We are not looking abroad at the cost of the Indian market. We are merely evaluating possibilities there.?

Despite this, Bharti is said to be targeting the mobile virtual network operator (MVNO) route to expansion abroad. Acquisitions are also on its mind, but mostly of smaller companies in markets such as the Middle East and Africa, say informed sources. In fact, Africa seems to be the favourite hunting ground for many telcos. ?It?s an emerging market,? says Sinha of MTNL.

By some estimates, mobile subscribers in Africa have surpassed the 300-million-mark, though some choose to peg it between 250 and 300 million instead. India?s subscriber base at the end of June 2008 was 286 million, while China?s was 584 million.

This makes the African market an exciting one for growth-starved telcos across the globe. Though South Africa is a key destination for many of them, growth in other parts of Africa is also there. The continent?s true potential, say some, lies in these areas as mobile penetration steadily increases there. According to the International Telecommunication Union (ITU), other parts of Africa including North Africa accounted for over 80% of mobile subscribers in 2007.

Countries in the Middle East and South Asia are some of the other markets on the radar screen of Indian telcos. Explains Sinha of MTNL, ?One has to see the growth potential that exists in a region. Where does the company that you desire to acquire or invest into fit into your scheme of things, etc.?

Issues such as valuation, purchase price and overall management control also take precedence in the case of mergers and acquisitions. Indian telcos have demonstrated that they are fairly savvy in this regard. Take the case of Bharti. The company pulled out of talks for a possible merger with MTN in May this year after the latter proposed that Bharti become a subsidiary of it in return for controlling interest by the Mittal family in the South African firm. This was clearly unacceptable to Bharti. It withdrew, only to be replaced by archrival Reliance, who has extended exclusive negotiations with MTN till July 21. How this deal eventually pans out, if it does at all, is anybody?s guess.