The latest Unitech-Telenor deal announcement wherein Telenor has taken a 60% stake in the new Indian operator Unitech Wireless for $1.7 billion has reinforced the fact that India despite being touted as one of the toughest and most competitive market is still attractive for foreign telcos who want to ??take part in the development and growth opportunities in one of the fastest growing telecom market in the world.?
This deal coming on top of the earlier announcement from Etisalat, which had picked up a 45% stake for around $900 million in India?s Swan Telecom also lays stress on the fact that the appeal of Indian Telecom goes beyond MENA (Middle East and North Africa) operators as was reported by certain sections of the press, and is more universal in nature.
The other significant part of these two high visibility deals is that neither of the Indian partners has rolled out any network and the monies that are being paid for stake acquisition is for buying the right to build, operate and run a greenfield telecom network in India. Obviously these buyers, who have committed serious money see merit in being part of the next 300 million growth story and have plans to build value in this market and be a serious player in the market consolidation that is expected to occur in the next 2-3 years time frame.
The other aspect of the timing of these deals could be potentially the clarity that it provides the stakeholders in their bidding strategy for the upcoming 3G auctions. From the perspective of a foreign telco, which does not have a 2G foothold in India, the 3G auction scenario is fraught with uncertainty and can be quite challenging due to the limited 5Mhz block per service area per operator auction rule and the various policy interventions being discussed regarding the additional license fee that would have to be paid by such telcos to obtain an access license and the other payment related clauses.
Besides the market and timing related issues, Telenor?s entry into the Indian market seems to be part of their strategy to strengthen their current position as the second largest non-Asian mobile operator after Vodafone in Asia. Starting from 1998 in Bangladesh, when Telenor made its first entry into the Asian market, it has made a series of investments in the Southeast Asian market that is inline with its strategy of investing in the emerging markets. Telenor has been successful in capturing a significant market share in its operating countries (Malaysia, Thailand, Bangladesh, Pakistan) in Asia and has achieved reasonable margins within a short duration of time. In Pakistan, starting in 2004, it has reported the highest average revenue per user (ARPU) and second largest market share.
From the India perspective, Telenor could use the experience that it has gained from its Bangladesh and Pakistan operations, countries with similar socio-economic needs and low affordability levels, to reach out to the rural and semi-urban areas in India, with innovative business models, as these are the areas which will contribute to the next wave of market growth.
In the coming months, the key developments to watch would be the potential stake sale of the remaining new licenses and the speed with which these new entities will garner resources both financial and otherwise to be able to roll out their networks by mid next year as stated. Aiding these would be the favourable policy interventions like implementation of both passive and active infrastructure sharing deals and other rural entry related sops provided by the government of India. It is hoped that all of the above activities will result in the as-yet-unconnected Indian consumer being spoilt for choice in terms of brands and pricing and the entire Indian mobile base witnessing improved levels of service quality and competition based on this differentiation!
The author is Associate Director, Telecom Group, PricewaterhouseCoopers