The Hindu Business Line : <I>A pricey battle </I>

The frenzy has gone out of the Hutch deal, at least for the moment. This gives time for calm reflection. Do the known facts justify the proposed price? Why were there so many contenders, even at this price?

Hutchison-Essar claims it had 18.4 million subscribers on August 31, 2006.

So the $14-billion threshold set by Hutchison Telecom for selling its 52 per cent share means $1,500 per subscriber.

According to the `Financial Analysis of the Telecom Industry of China and India,' published by TRAI in June 2006, the Average Revenue Per User for Indian GSM mobile operators in 2005/6 was $8.

Operational expenses per subscriber, at $5.49, `included salary, network running and operating costs, interconnect usage charges, sales and marketing costs, administrative cost and other regulatory costs etc.' In which case, Hutchison-Essar would make an operational profit of around $46 million; $2.5 per subscriber. The TRAI paper puts capital costs at $147 per subscriber, and the return on capital at 7.44 per cent.

In which case, Hutchison-Essar would be getting a return of $200 million a year on deployed capital of around $2.7 billion. This is way below the return on capital that any good businessman would accept.

One of Sherlock Holmes one-liners comes to mind. `When you have eliminated the impossible, whatever remains, however improbable, must be the truth.'

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