The fall of the Wall Street legends is going to severely impact the expansion in the telecom sector, as the large war chests needed for the same would now be hard to come by, for both cross-border and Greenfield Indian telecom ventures.
The new licencees, which are mostly start-up ventures are expected to take the maximum hit as, “new licence holders such as Unitech, Swan, Datacom, S Tel, would need at least $3 billion to meet the minimum roll out obligations in future and mergers and acquisitions too will be deferred for another 2-3 quarters”, an analyst with a leading brokerage firm said. He added that no matter how optimistic the telecom players sound, the financial turmoil will impact their cross-border acquisition plans.
“Though the established Indian telecom companies won?t get affected in their operations and roll out but the global financial turmoil will definitely reduce the otherwise ample funds required for a wave of mergers and acquisitions, which was expected to begin”, said Romal Shetty, an analyst with KPMG.
Bharti Airtel, the country’s largest telecom company has been actively evaluating its options to increase its global footprint.
Lehman Brothers was one of the companies that had reportedly committed massive funds to Reliance Communications during the latter’s negotiation with the South African MTN and the South African telecom giant itself was being advised by Merrill Lynch, during its negotiations with both Indian telecom companies, Rcomm and Airtel. Bharti Airtel had commitments by bankers to the tune of $60 billion for its negotiations with MTN, a figure that might not be easy to raise in near future.
This isn’t it. The financial turmoil is also likely to take its toll on the plans of foreign telcos like France Telecom, Deutsche Telekom, or Japan?s NTT DoCoMo?s India plans, as funds dry-up.
However, Manoj Mohta an analyst with Crisil Research is still optimistic on the expansion of the telecom sector. “India is an extremely attractive proposition for global telcos as it is the fastest growing telecom market and telecom companies characteristically have accruals to generate enough cash which they can utilise”. He added that the next five years would witness the doubling of the subscriber base and no other place apart from China can match this business potential, hence no telecom company would want to miss this opportunity. Mohta however agreed that in case of debt funding the companies would have to be very careful of the price they pay.