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K.Venkatasubramanian

BL Research Bureau Tata Teleservices’ (TTSL) sale of a 26 percent stake to Japanese telecom market leader - NTT DoCoMo - for a reported $2.7 billion is yet another case of a foreign player seeking a toehold in the Indian market, by partnering a domestic player.

TTSL operates in 20 circles outside Maharashtra and Mumbai and also owns a 37.6 percent stake in the listed Tata Teleservices Maharashtra Ltd. Indian regulations allow up to 74 per cent investment by foreign investors in telecom companies.

With Idea Cellular selling stake to Telekom Malaysia and Bharti Airtel already partnered by Singtel, Reliance Communications now remains the only pan-India operator that does not have significant foreign partner in the telecom business.

Recent stake sales by new telecom players suggest that among foreign players at least, none has misgivings that the domestic market will reach a saturation point anytime soon. The imminent auction of 3G spectrum in January may also have prompted foreign players to make a beeline for the Indian market.

Singapore Telecommunications owns over 30 percent stake in Bharti Telecom, which in turn holds a 45.3 percent stake in Bharti Airtel. Telekom Malaysia has also been a foreign partner of Spice Communications with a 39 percent stake. Spice’s buyout by Idea Cellular has resulted in Telekom Malaysia through TMT Mauritius, holding a 14.99 percent stake in Idea Cellular.

The practice of roping in a foreign partner can be attributed to the fact that Indian players, in the initial years of telecom expansion, were cash strapped and required technological inputs from foreign players. Foreign telecom operators brought in both of these aspects with them and stayed invested here, as growth numbers exceeded most expectations.

As growth opportunities abounded, foreign players have ramped up the valuations that they paid for their India foray. Aircel, in November 2005, sold a 100 percent stake for $1.08 billion, shared by an Indian partner and foreign player. Maxis Telecom made its Indian foray (from Malaysia) and took an effective 74 percent in Aircel when it had around 2.2 million subscribers.

Since then, valuations have risen significantly. In early 2007 Vodafone paid a whopping $10.8 billion for a 52 percent stake in Hutchison Essar, which had 23 million subscribers Indian subscribers. When in June-July 2007, Vodafone sold its 10 per cent stake in Bharti to its promoters, (in two transactions), it got $3 billion in return. But recent stake sale by Unitech Wireless (60 per cent for Rs 6,120 Crore) and Swan Telecom (45 percent for Rs 4,100 Crore) to Telenor and Etisalat respectively, may well take the cake on valuations. Though neither of these domestic players have even rolled out their networks, let alone added subscribers, they have still raked in $2.1 billion from stake sales!

More Stories on : Mergers & Acquisitions | Telecommunications

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