PwC, E&Y among 8 shortlisted consultants by BSNL

11 Jun 2009, 1931 hrs IST, PTI on www.economictimes.com

NEW DELHI: State-run BSNL has shortlisted eight consultants, including Ernst & Young, McKinsey, KPMG and PriceWaterHouseCoopers, for its plans of mergers and acquisition, strategic partnerships and overseas forays.

A BSNL official told PTI it has also empaneled British Tele Consults, Value Partners, PRPM Consults and Diamond Management and Technology Consultants.

The official said PwC has furnished a certificate to BSNL saying it has not been barred to deal with any PSU and BSNL, if found later so, it can terminate the services of PwC.

These consultants will have to enter into an agreement with BSNL by tomorrow. Each time BSNL undertakes an overseas initiative, these eight firms will be asked to quote their commission price and the the lowest bider will be selected for that particular job, the official said.

The official said the PSU is looking at Africa as an area of focus as it is an emerging region and also culturally, financially, African countries suits more to India firms.

The state-run firm, which so far concentrated only on the Indian market (except Delhi and Mumbai), has decided to expand overseas. Sources said BSNL has a cash surplus of over 10 billion dollars and would use part of these resources for its overseas foray.

France Telecom & Telstra in talks with Maxis to buy minority stake in Aircel

10 Jun 2009, 0047 hrs IST, Rashmi Pratap & Boby Kurian, ET Bureau

MUMBAI | BANGALORE: France Telecom and Telstra of Australia are in talks with Malaysia’s Maxis Communication to buy a minority stake in Indian telecom operator Aircel, in yet another sign that the ongoing slowdown and credit crunch are having a negligible impact on deal activity in the telecom sector.

The talks between the two overseas players and Maxis revolve around France Tele buying a 20-25% stake in Aircel, a dominant player in Chennai and Tamil Nadu. Aircel, which is one of the major regional players in India, is in the midst of a $5-billion expansion plan that will see it becoming a pan-India player.

Meanwhile, Saudi Telecom, which owns 25% in Aircel parent Maxis, is likely to increase its stake in the company to 35% for about $1 billion. The money from the sale of Maxis’ stake will also be used to invest in Aircel. Goldman Sachs is advising Saudi Telecom in its transaction with Maxis. The deal with Saudi Telecom is expected to be completed within a month.

Estimates of the valuation of Aircel, which has a subscriber base of 19.6 million, vary between $7 billion and $8 billion. France Tele, which is not looking to buy a majority stake, will end up paying about $1.4-2 billion if the deal goes through at this valuation, people close to the development said.

The Indian telecom sector is perhaps one of the few sectors in the economy that is still witnessing strong M&A deal activity despite an economic slowdown. In the past 10 months, about $5 billion of deals have been concluded, including a mega $2.7-billion transaction that saw Japanese giant NTT DoCoMo buying 26% in Tata Teleservices.

Indian telecom companies, too, are growing at a scorching pace with monthly subscriber additions rising to more than 10 million a month. At this rate, Indian subscriber base is expected to leap past the 500 million mark in double quick time.

Aircel on course to widen pan-India reach by June 2010

The continued high growth is of great interest to foreign investors. Impending developments such as auction of spectrum for 3G (third generation) and broadband wireless access (BWA), besides the entry of MVNOs (mobile virtual network operators), offer further growth opportunities,” said Salil Pitale, head (telecom & media), at Enam Investment Banking.

For France Telecom, Europe’s third-largest phone company which owns the Orange brand, it will be an opportunity to re-enter the world’s fastest growing telecom as it faces a slowdown in its home turf and in other mature markets.

In response to an e-mail, an Aircel spokesperson said, “We are not aware of any discussions with France Telecom about this matter. Maxis Communications and its partners remain firmly committed to the accelerated growth and development of Aircel to be a successful pan-India operator.” A France Telecom spokesperson said, “We do not comment on market rumours.”

France Telecom first approached Maxis in August last year, just before the global market meltdown. “At that time, it was also in talks with Tata Teleservices (TTSL). Negotiations with Maxis were revived after NTT DoCoMo clinched the deal with TTSL,” a person familiar with the discussions told ET.

Maxis was also in talks with AT&T last year for selling a similar stake, but the deal could not go through because of differences in valuation. Talks between France Tele are still at a preliminary stage and the deal may also fall through because of Maxis’ insistence that the prospective investor also purchase a small stake from Maxis. France Tele, on the other hand, wants the investment to go into the company, that is Aircel, and is not keen on buying directly from Maxis.

Maxis owns 74% in Aircel while the rest is held by Chennai-based Reddy family, promoters of Apollo Hospitals. France Tele had held a stake in Mumbai-based BPL Mobile for many years before exiting in 2003. In 2007, its group company Orange Business Services acquired GTL’s enterprise and managed services division. Subsequently, it bagged NLD and ILD licences in India. A stake in a mobile firm now will complete France Telecom’s India story.

Aircel is currently in a money-guzzling mode, with the target to complete pan-India footprint by June next year. Ananda Krishnan, the owner of Maxis, also needs money to pump into Natrindo Telepon Seluler, a telecom firm in Indonesia which has a 3G licence. Plus, he bought out NTT DoCoMo from Sri Lanka Telecom in 2007 and that business also requires continued investments.

In a bid to fund these plans, Ananda delisted Maxis in June 2007 in a $12-billion deal and within days, he sold 25% of it to Saudi Telecom for over $3 billion. Due to this, Saudi Telecom has an effective 18.5% stake in Aircel. Dilution of another 25% in Aircel will help Ananda’s Maxis raise around $2 billion at a time when global credit scenario is not very positive.

At the same time, India’s telecom growth story continues to attract international investor interest, with all the major telcos making a beeline for India. This is despite the presence of 12 players and entry of four more telcos later this year. For Ananda, stake sale could be an opportunity to raise money without giving any controlling rights.

Low-profile billionaire Ananda Krishnan, whose business empire stretches from telecom and media to power and construction, is known for buying and selling businesses. In May last year, he sold Excel, the giant exhibition venue in London’s Docklands, for around $230 million, to a group backed by the crown prince of Abu Dhabi. He then bought a 20% stake in British regional newspaper chain Johnston Press and is widely believed to be interested in setting up a global media empire.

RComm, Kribhco JV eyes rural cell market

From Hindustan Times on June 9, 2009

Kribhco and Reliance Communications Ltd (RComm) on Tuesday formed a joint venture — KRIBHCO Reliance Kisan Limited (KRKL) — to distribute RComm’s services through its network of more than 25,000 cooperatives throughout the country.

KRIBHCO will hold 60 per cent equity in the joint venture company with the balance 40 per cent held by Reliance ADAG group.

“The JV will market telecom products of RComm — both GSM and CDMA,” said SP Shukla, president, wireless, Reliance Communications.

“Later, KRKL will also distribute products and services of other business enterprises of Reliance ADAG including Reliance Capital, Reliance Entertainment and BIG TV DTH,” he said.

This is the second such marketing tie up to reach out to the rural area. Earlier, Bharti airtel did a similar tie up with IFFCO.

Related stories at

• http://www.business-standard.com/india/news/rcom-kribhco-to-form-jv/360632/
• http://www.thehindubusinessline.com/2009/06/11/stories/2009061150960400.htm
• http://economictimes.indiatimes.com/RCOM-ties-up-with-Krishak-Bharati-to-capture-rural-India/articleshow/4640234.cms

Telcos dial Africa for new pastures

Manoj Gairola, Hindustan Times on June 7, 2009

After tasting success in domestic markets, it’s ‘Dial Africa’ for Indian telecommunication companies. And it’s not the high-profile, twice-rejected MTN alone that’s attracting Indian firms.

While the government-owned Mahanagar Telephone Nigam Ltd (MTNL) is in advanced discussions for telecom licences in four countries, Bharat Sanchar Nigam Ltd (BSNL) is formulating its strategy to enter the continent.

Adding their bit are the Essar group, Tata Communications and Reliance Communications, all of which have licences for telecom services in African countries and are looking to expand their operations.

Bharti Airtel is negotiating with South Africa-based MTN for a “two way deal” that would allow it to own 49 per cent equity in South African giant MTN.

“We are evaluating a proposal to acquire a company that has licences in four to five countries,” said R.S.P. Sinha, chairman and managing director (CMD), MTNL. “Africa is a lucrative market and we would like to acquire a licence through auction if there is an opportunity.” However, in most countries, licences have been auctioned.

“Funding is not an issue for our Africa expansions,” Sinha said. “We have done all the ground work.” MTNL is presently a service provider in partnership with Tata Communications (formerly VSNL) and Telecommunications Consultants India Ltd (TCIL). “We will enter into Africa on our own,” said Sinha.

MTNL not the only government-owned company eyeing the African market. “We are looking at an expansion in Africa,” said Kuldeep Goyal, CMD, BSNL. “Whenever we find right opportunity we will grab it.”

Essar group has acquired a telecom licence in Uganda. “Africa is an important market for Essar’s telecom business and we are working towards building a strong brand in this market,” said Srinivas iyengar, CEO, Essar Telecom Kenya. “We would be looking at opportunities to establish a pan Africa footprint in future.”

The company plans to offer services in a joint venture with a local company, Kenya Telecom Uganda Ltd. It already has a licence in Kenya and plans to expand in other countries.

“We find African markets promising and have recently hiked our stake in Neotel (of South Africa) to 56 per cent from 26 per cent,” a senior Tata Communications official said. “We view this as a beach head to the rest of the African markets as and when right opportunities arise.”

Why Africa?

“African countries have just started moving on the development path,” said RK Upadhyay, CMD, TCIL. The company has been executing telecom infrastructure projects in Africa for past 20 years and is present in 30 countries. “There is expected to be enormous growth in telecommunications in next five years. Whenever, development takes place in a developing economy, the need for telecom services increases,” Upadhyay said.

“Africa has a low teledensity and high average revenue per user,” said Goyal. This explains why Indian providers want to go to. India has a teledensity (number of telephones for a population of 100) of about 40 per cent. In many African countries the teledensity is below 20 per cent (See table).

Besides, the continent’s average revenue per user is high. Against Rs 250 per month in India, the number in some African countries including is about three times as much.

Reliance has a licence in Uganda for offering mobile, fixed line, Internet, national and international long distance services, in addition to WiMax and Wifi services. It plans to acquire licences in other countries, a senior official said.

Bharti, MTN to see $6.9 bn additional debt after deal: Fitch

3 Jun 2009, 1628 hrs IST, PTI on http://www.economictimes.com

NEW DELHI: A potential merger

being discussed by Indian telecom major Bharti Airtel and South Africa’s MTN could increase the net debt of the two firms by about $6.9 bn, global rating agency Fitch said today.

“Under the current terms as presented to the market, it could result in additional net debt of 4 bn dollars at Bharti and 2.9 bn dollars at MTN,” Fitch said in its comments on the potential transaction, but noted that it would wait for finalisation of the transaction before taking any rating action on the two firms.

Fitch said that it would closely monitor developments and was taking “note of the strategic merits of a potential partnership between Bharti and MTN, as well as the positive impact on their respective business risk profiles in terms of diversification and enhanced scale.”

“Nevertheless given the early stages of the discussions, potential regulatory hurdles and other associated uncertainties surrounding the transaction, Fitch will await finalisation of the transaction structure before taking any formal rating action,” it added.

Interview — CDMA is better than GSM: Sistema Shyam

From http://www.ciol.com on 01 June 2009

BANGALORE, INDIA: Indian telecom sphere is all set to witness a tug of war with six new international telecom players set to enter the scenario.

Sistema Shyam Teleservices, a joint venture between Russia’s Sistema and India’s Shyam group, the only CDMA (code division multiple access) player of the lot, recently launched its services in West Bengal.

During an interview given to CIOL, Vsevolod Rozanov, president and CEO, Sistema Shyam TeleServices, said that CDMA is a better technology than GSM because it enables better utilisation of the frequencies available, and thus helps in bringing down the costs. Excerpts:

CIOL: The Indian metros and urban areas have attained saturation in terms of telecom density. So where do you see the demand coming from and for what?

Vsevolod Rozanov: If we have to grow fast, apart from expanding our footprint in new circles and getting new customers (first-time users), we have to wean away customers from the incumbents.

We believe there is a huge market for us to grow. While there are players who have the first mover’s advantage, there is still a vast chunk of existing individual users who will find higher value for money in our tariff and billing plans.

CIOL: What are your investment plans for India? What will be the focus?

VR: We plan to invest $5.5 billion in India over a period of five years. We will utilize most of this projected investment over the next two years for setting up infrastructure that will enable accessibility and better connectivity for mobile phone users.

We have already invested more than $1 billion in setting up our network. We have launched the brand in Rajasthan, Tamil Nadu, Chennai, Kerala and Kolkata. We are planning to launch services in Delhi by Q3 this year, and looking to foray into one circle every month.

We will eventually cover UP, Haryana and Maharashtra circles by the end of this calendar year. Thus, in the next nine months, the MTS brand will be seen in half of the 22 telecom circles across the country, achieving a pan-India footprint by mid-2010.

CIOL: Do you see a possibility of M&A going forward to meet the increased challenge? What is your take on infrastructure sharing among service providers to combat frequent network disruptions owing to issues like natural disasters?

VR: We are not aware of any significant player in the CDMA segment in India who is planning to hive off its telecom business.

We will have a combination of self-owned and shared infrastructure to ensure that we provide the best connectivity across the country. We already have tie-ups and agreements with various infrastructure companies across the country to ensure superior quality of service.

CIOL: How different will be your ‘go-to-market’ strategy?

VR: In Rajasthan, the key message of our campaign is to create a churn in the market through the slogan, “Badlo life ka plan” (change your life’s plan).

Today over 50 per cent of our subscribers in Rajasthan are not new customers, but those who have switched over from other mobile service operators. They are doing so because they are frustrated with the quality of the old incumbent networks, and are willing to try our non-congested network.

We do not see much difference between GSM (global system for mobile communications) and CDMA. Customers using CDMA technology are approximately one quarter of all. Given the size of the Indian market, this is not small at all.

We have been looking at whether we should wait until we are fully ready with CDMA data offerings or we should start building our customer base and deliver our data offers a bit later. We decided to go in for the second option. We will be coming out with the data offering soon.

CIOL: With several service providers in the frame, will the cost of service be brought down further?

VR: India is a highly price sensitive market. Our pan-Indian strategy will focus on simplicity in all our marketing strategy. We will offer simple, very clear and understandable tariff plans for our customers. Our tariffs will be the lowest, with no hidden charges.

We have dropped the price of entry-level colour phones to Rs 999, and they come with six months of free calls and lifetime validity. The subsidy that we incur on every phone is going down as the price of phones is going down faster than the fall in new offers.

We will offer SMS at 50 paise unlike most other operators who charge one rupee. The tariffs can fall further, if the regulator makes the termination charge cost-based, which would be less than 10 paise a minute from the current 30 paise, the same can be passed on to customers.

CIOL: How do you see advanced mobile technologies – such as 3G, CDMA – gaining currency in rural areas as well, especially when India has very less wireless penetration?

VR: The advanced mobile technologies such as 3G have the potential to meet the digital divide between rural and urban India by penetrating into far-fetched areas, where fixed-line connectivity is sparse due to high deployment cost of infrastructure. 3G will not only alleviate the existing level of voice-based services, but also make Internet broadband access a reality for larger population.

3G will also fit well into the urban user’s plan. It will enable quality voice and address the pent-up demand for high-bandwidth data exchange on mobile phones and support high-speed Internet access on other portable devices.

The government has recognized 3G as the cornerstone for growth of the telecom sector and is expected to allocate the third generation on priority.

CIOL: What is being done to take the brand into the market?

VR: MTS is the eighth-largest telecom company in the world with over 100 million customers. In India, we are the sixth or seventh operator. We are using faces of models talking on the mobile phone to relate to the consumers and give our service the human touch. We have also decided to concentrate most of our advertising and marketing spend on local media, via regional language instead of English.

We have also recently rebranded our existing operations in Rajasthan, under the ‘Rainbow’ brand, to MTS. Rainbow was a regional brand limited to Rajasthan and what we needed was a pan-India brand name. Accordingly we painted the Pink City Jaipur to red – the colour of our brand.

The most important factor is the time-to-market – how quickly we could launch the brand across India in the next nine months. With MTS, the brand material, logo and specifications are all readymade and already available

CIOL: How do you look at the slowdown?

VR: Global economic slowdown is a business challenge for enterprises across the globe. However, Sistema is one of the largest public diversified corporations in Russia. We have sufficient funds to expand our operations, and launch our services on a pan-India basis.

India is one of the fastest growing markets for telecom, and has been relatively un-impacted by recession. As of now, the situation is under control, because the financial meltdown has not impacted Indian banks in a major way.

However, if the situation worsens, then we could be in a spot as we are not allowed to bring in foreign funds in the form of debt. We are allowed to bring money in the form of equity, but our promoters would like to have the flexibility to decide on what form they would like to pump in money into the company.

The Indian Government should consider relaxing the foreign investment norms, which will allow international players to bring in funds in the form of loan.

CIOL: What would be the newer trends in the Indian mobility sector?

VR: The year 2009 is expected to be an exciting year for the Indian mobile telephony market. With the Congress-led UPA (United Progressive Alliance) voted back to power, the sector can look forward to speedy auction of the long-awaited 3G spectrum.

A significant portion of the rural population will witness phased growth in first-time Internet access and welfare programs covering telemedicine, e-governance and distance learning – propelled by 3G mobile broadband and WiMax.

While the 3G network would infuse better services for subscribers and enhance revenues from VAS (value-added services) for operators, the introduction of MNP will offer users the convenience of retaining their mobile phone number even after switching between networks and operators.

Mobile payment and commerce for micro-transactions is also expected to attract greater user-orientation.

SingTel to keep stake in Bharti Airtel intact

Gairola, Hindustan Times , 03 June 2009

The proposed partnership deal between Bharti Airtel and South Africa’s MTN may not necessarily result in huge dilution of Singapore Telecommunications Ltd (Singtel), which holds a 30 per cent stake in Bharti.

A source familiar with the deal said that Singtel finds India an important market and is exploring ways such that it does not have to dilute its equity in the company, if the Bharti-MTN deal goes through.

Singapore’s largest company by market capitalisation, Singtel neither confirmed nor denied the development.“Discussions between Bharti and MTN are ongoing at this stage and as stated in Bharti’s press release, SingTel will remain a significant shareholder and strategic partner in Bharti post any successful transaction,” said a Singtel spokesperson in written reply to Hindustan Times.

“Consistent with our approach as a strategic investor and equity accounting for our investments, we will continue to equity account for Bharti, in its enlarged form post the transaction if this is successful,” the spokesperson said.

On May 25, Bharti Airtel announced a “strategic partnership deal” with a broader objective to achieve a “full merger” with MTN. The announcement said that MTN and its shareholders would acquire about 36 per cent economic interest in Bharti, of which 25 per cent would be held by MTN and the rest will be held by MTN shareholders.

In turn, Bharti would acquire about 49 per cent shareholding in MTN.

By virtue of its 30 per cent holding in Bhrati Airtel, Singtel’s stake in the post-merger scenario should fall to about 19 per cent. “However, Singtel is looking at higher stake in India operations,” said the source. “The company would like to maintain the present level of equity.”

Goldman Sachs is advising Singtel on this deal, the source said, adding that Singtel is willing to extend financial support to Bharti for the deal. The size of the two-way deal is about $23 billion.

DoT against lock-in for promoters equity; mergers on cards

31 May 2009, 1053 hrs IST, PTI on http://www.economictimes.com

NEW DELHI: The fast growing telecom sector is set to witness another round of mergers and acquisitions

with the DoT recommending against lock-in of promoters’ equity, saying this would only hamper growth and competition.

The committee for finalising the views of the Department of Telecom (DoT) on lock-in period for promoters’ equity is understood to have submitted its report in this regard.

“Despite exponential growth and intense competition, the telecom industry even after 15 years of operation is cash flow negative. Capital efficiency of the sector is an important pre-requisite for achieving consumer interest in a sustainable manner.

“Further growth and coverage of the rural and remote areas would entail huge investments. Against the backdrop of economic downturn, it is a challenge to raise investible funds, and there is a need for valuable foreign investments,” the committee said.

“The lock-in period will only hamper growth of telecom market and competition,” it added.

The issue of lock-in period was raised as some of the new players inducted new partners to garner funds for rolling out network across the nation.

If accepted, this would lead to consolidation of telecom industry and according to analysts the business of mobile services may not be commercially viable in case there are more than four or five operators in a circle.

At present, there are eight to nine mobile operators in each circle and with the teledensity especially in the urban areas crossing 30 per cent, the commercial viability of players is at stake.

The committee also observed that the concept of fly-by-night operators has not been experienced in the telecom arena so far, the report of the committee said.

To call some licencees as fly-by-night operators for undertaking transactions, which are well within their licence terms, “is unfair and there is no need to impose any new condition on any of the access services providers,” it added.

The paid-up capital and networth requirement are prescribed to avoid non-serious and fly-by-night operators.

The committee, thus, recommended that there should not be any new condition regarding Lock-in of promoters equity on any access services licensees for development of telecom sector in India.

Although some of the new players like Unitech and Swan telecom have raised funds by issuing fresh equity to foreign partners but with this recommendation, if accepted, would help others including Datacom and Loop telecom to achieve roll out obligations faster.

Telecom policy awaits TRAI nod

30 May 2009, 0029 hrs IST, Joji Thomas Philip, ET Bureau

NEW DELHI: The communication ministry will seek telecom regulator TRAI’s endorsement before going ahead with the new policy, which will determine the allocation of additional airwaves to all existing telecom companies, a top government official said.

The spectrum panel, in its report submitted last month, had said that all telcos should be allowed to buy, sell and transfer airwaves for a fee, while adding that the country should adopt the internationally-accepted auction system for issuing additional airwaves to telcos. The panel comprised representatives of the government, telecom regulator TRAI, telecom technology experts and industry executives.

“We will send the panel’s report to TRAI. Since TRAI had earlier made recommendations on the issues addressed by the panel, we feel that their views should be sought on the report too,” telecom minister A Raja told ET. The panel had also suggested several changes in India’s telecom M&A norms to allow consolidation and had criticised the current policy stating that it had led to fragmentation of the sector by allowing about 15 players per circle.

Currently, India follows a controversial practice of allocating spectrum based on companies’ subscriber base, and is the only country in the world that follows this method. The panel had said that only the start-up spectrum, which is the minimum amount of radio frequencies that is required to launch mobile services, should be given for free to existing telcos.

All subsequent allocations should be only through auctions, it said. As per the current policy, all telcos share 2-6% of their annual revenues with the government as a fee for using the radio frequencies allotted to them. The committee had said this fee should be a flat 3% irrespective of the quantity of radio frequencies that is held by a telecom company.

In another development, the communications ministry has also decided to oppose the finance ministry’s demand of doubling the 3G auction base price to Rs 4,040 crore. DoT has told the Prime Minister’s Office that the base price must not be higher than Rs 2,020 crore for pan-India 3G spectrum.

Differences between several ministries over the floor price for the auction of 3G airwaves and also over the number of players to be allowed to offer these high-end services in an area had forced the cabinet to refer the matter to a Group of Ministers just prior to the general elections. The auctions could not be held prior to the polls as GoM failed to meet to find a solution to these issues.

While DoT in its 3G policy has said that the base price for pan-India 3G spectrum would be Rs 2,020 crore and that for broadband access technologies, such as WiMAX, would be Rs 1,010 crore, the finance ministry had demanded that this price be doubled. The issue got further complicated as the planning commission, the department of industrial policy and promotion and the IT ministry opposed doubling of the base price.

BSNL readies $10-b war chest for overseas buys

From The Hindu Business Line on 29 May 2009

Our Bureau
New Delhi, May 28 Following moves by private telecom players to acquire international operators, State-owned Bharat Sanchar Nigam Ltd is readying a $10-billion corpus for its own global ambitions.

The company is scouting for a consultant to advise the PSU on the international plan. The PSU has also set up a separate business unit under a General Manager ranked officer to look aggressively for opportunities in foreign markets. While the other telecom PSU, Mahanagar Telephone Nigam Ltd, has invested in a few international markets such as Nepal and Mauritius, this is BSNL’s first real move to go beyond India. Though the company had expressed interest to bid for licences in Tunisia and Oman earlier it did not go through with the plan.

According to BSNL officials, the company is open to all forms of investments including merger, acquisition, strategic partnership, or buying new telecom licences for starting greenfield operations. While the company is looking for opportunities across all geographies, it is more interested in the African and Middle East markets.

BSNL sources said the acquisitions will be funded from the company’s cash reserves. The money raised through a possible IPO could also be used for the international move.

The biggest fixed line player in India with 35 million subscribers. BSNL is the fourth largest mobile operator after Bharti Airtel, Reliance Communications and Vodafone Essar. Most of the other big players in the country already have some investments in the international market.
BSNL’s revenues have been dipping the past few years owing to high competition and low margins.

BSNL would be among the few government-owned companies worldwide looking to go beyond their domestic turf. Chinese telecom operators are also targeting operators in the African continent.

According to analysts, BSNL has the advantage of operating in a low-cost market such as India. It could replicate the low-margin, high-volume business model in other emerging markets such as Africa.

BSNL has the experience of operating millions of rural telephone lines. Most African countries are similar to India in terms of the large rural population. BSNL also has about three lakh employees who can be deputed to manage networks of international operators post a successful foray.

(Valuation Process) Does Bharti-MTN deal signal a recovery?

From The Hindu Business line on 28 May 2009

(The Indian market does not offer very much in terms of future growth. Fundamentally, the telecom story seems to have played out to a large extent)

Interview with VIVEK GUPTA, PARTNER, M&A PRACTICE, BMR ADVISORS

D. Murali

The first developing-nation foray into the ‘Big 5’ of the telecom world encompassing two fast-growing emerging wireless markets, India and Africa; consolidated post-deal financials, north of 200 million subscribers and revenues of $20 billion; one of India’s biggest cross-border deals, even relative to Tata-Corus or Hutch-Vodafone… These are some of the opening observations about the Bharti-MTN deal that Mr Vivek Gupta, Partner, M &A practice, BMR Advisors, New Delhi, shares with Business Line, during a quick email interaction shortly after the mega merger was in the news. “And the deal is slated to happen this time at fair sensible valuations – in a sense; it is good that the deal was not consummated last year,” adds Mr Gupta. Since May 2008, ignoring the last two days, Bharti’s capitalisation has declined over 5 per cent, while MTN fell over 32 per cent, he notes. “Given the deal terms that have emerged, it seems that the financial side is more or less stitched up, and thus, we believe the deal will likely go through this time.”

Excerpts from the interview:

What are the quantitative parameters of the valuation process, apart from the telecom companies’ subscriber base?

The deal envisages Bharti giving up 36 per cent equity — 25 per cent to MTN and 11 per cent to its shareholders — and $4.1 billion, in return for a controlling 49 per cent stake in MTN. MTN will become Bharti’s “subsidiary by governance structure.” I guess that Bharti may not have immediately pushed for a 50 per cent plus stake, due to regulatory issues around licences, but it does seem apparent that Bharti will be the controlling party.

A number of factors would have gone into the valuation discussions:

Bharti’s revenues of $7.5 billion vs MTN’s $12 billion.

EBIDTA (earnings before interest, taxes, depreciation and amortisation) margins around 40 per cent for both entities but finally, similar net profit numbers.

Bharti’s ARPU (average revenue per user) at around $6.5, with MTN at around $13.

Growth projections for both markets – Africa having relatively higher potential than India.

Relative market capitalisations of both listed entities, with Bharti carrying more generous market multiples.

Finally, the end result of all of these factors is a 30 per cent premium to MTN’s current market capitalisation — an EV/ EBIDTA in the region of sub 6 — a valuation that seems defensible, considering the large 49 per cent block of equity with a “governance structure” in Bharti’s favour.

India and Africa, are there similarities and differences of significance, from a telecom perspective?

Both are developing country markets and thus, have inherent similarities — number of subscribers, contribution of mobile subscribers to the overall telecommunication industry, etc. At the same time, they seem to be at different stages of their growth cycles. The African telecommunication market is estimated to grow at roughly 40 per cent. It is estimated that India will grow for the next couple of years and then will start stagnating, while Africa will potentially continue to show higher growth for four to five years.

On the ARPU front, Africa ranks better than India, at roughly $12 per subscriber as compared to $6 per subscriber in India. Also, as compared to India, in Africa, per-minute prices are higher, demand for SMS over voice is limited because of low literacy levels, and bottlenecks exist in sharing platforms between local operations on account of small populations in some countries, political issues, language barriers and lack of affordable cross-border connectivity.

By 2012-13, convergence is expected. The known factors should take over — increasing competition, price reductions and another wave of low-income customers should drive the ARPU levels down in Africa too. And Indian operators understand this game well — the game of working on high volumes, low margins, the game of building economies of scale, higher affordability and tight management of extensive outsourcing contracts.

Post meltdown, the deal space was barren for quite some time. Does the Bharti-MTN deal signal a recovery trajectory, leading to many more mega deals in other sectors, too?

One way to think about this deal is to really peg it as being independent of market conditions. The fundamental drivers have been there for a while. The lower markets and efflux of time may have helped the deal talks this time from the point of view of more flexibility on both sides to make the deal happen. And thus, we are hopefully in a situation where deal talks have progressed. For this reason, we do not necessarily believe that the announcement of this specific Bharti-MTN deal indicates a strong recovery trajectory in the deal space per se.

As an emerging market merger, does the Bharti-MTN deal have characteristics that may not be found in the developed markets?

The telecom industry has seen lot of transactions globally in the past. They have had different drivers. For example, in December 2006, AT&T acquired BellSouth. It was then estimated that the NPV of the expected synergies would be as high as $18 billion. In two other transactions which took place in 2005, SBC buying AT&T and Verizon buying MCI, the target was to save 20-50 per cent of their total operating costs by reducing the number of networks, thereby eliminating redundant switches, devices, people and buildings. Bharti-MTN is not entirely similar. The fundamental driver seems to be geographical expansion and along the way come benefits of scale and bargaining power.

The two companies could look to each other to add value to their operations and by sharing each other’s best practices. MTN should be able to use Bharti’s technology and techniques for rolling out networks inexpensively and quickly. Bharti will be able to diversify beyond India’s borders, where expanding its base means having to reach out to poorer consumers.

Put differently, from Bharti’s point of view, the Indian market does not offer very much in terms of future growth – 3G and some value-added services may carry some kickers but fundamentally, the telecom story has played out to a large extent. This foray probably is thus an attempt to carry the “telecom story” for the company further by expanding into another potentially high-growth market.

Any other points of interest?

This is the first really large deal that takes advantage of the recent change the Government has announced in what it considers foreign and domestic holding. Now, foreign shareholding in a majority Indian-owned and controlled company is not considered foreign for downstream investments and that offers much greater flexibility in opening up headroom for MTN and its shareholders to acquire stakes in Bharti.

Also, it’s interesting to see that the deal is structured in a way not to have to look at an open offer in India. That would have been a significant cost leakage, given that MTN was picking up more than the 15 per cent trigger limit. The Bharti release seems to indicate that the deal will happen through a Scheme of Arrangement, which means it will be taken to the High Court under Sections 391 to 394 of the Companies Act, 1956 and will thus, enjoy exemption from the Takeover Code. To a large extent, the deal’s success will be predicated on its being piloted successfully through the myriad regulatory and structuring issues governing a deal of this nature.

Bio:

Mr Vivek Gupta, who has worked in the M&A group of the tax practice at Ernst & Young for three years and Arthur Andersen for three and a half years, prior to joining BMR, has experience in mergers, acquisitions and business reorganisations, domestic as well as multi-jurisdictional, having participated in many cross-border and domestic transactions across diverse industries. He has advised a number of domestic and multinational companies on complex transactions which involve acquisitions, mergers, divestments and other business reorganisations and brings a blend of strategic, financial, tax, regulatory and commercial skills to such engagements. Mr Gupta, a Commerce graduate from the Delhi University and a Chartered Accountant, finds mention in the International Tax Review 2004, as a leading advisor on M&A transactions in India.

Indian Telco M&A Growth story

From Times Of India, 27 May 2009

Telecom M&As set to touch $50 billion within a span of four years

27 May 2009, 0408 hrs IST, SHALINI SINGH, TNN on http://www.economictimes.com/

NEW DELHI: If Bharti Airtel’s proposed $23 to $29 billion merger with South African operator MTN goes through, India’s telecom M&A market will come of age either crossing or getting close to the $50 billion mark within a span of four years.

The telecom sector has seen greater M&A deals than any other segment in the country. Since 2005, 15 M&A deals have been struck, crossing a value of $25 billion. If Bharti pulls off a marriage with MTN, this number can cross $50 billion.

This also reveals that the size of Bharti-MTN deal will be roughly equal to or more than the last 15 telecom M&A deals in the country, though it is different since the transaction size is driven by share-swap rather than pure equity sale.

M&As in the Indian telecom sector started in the late 90s with companies like Bharti, Hutchison (now Vodafone), and Birla-AT&T (now Idea) starting to buy out smaller cellular operators with one or two circle operations. The first large M&A deal began with Tata Cellular merging with Birla-AT&T. This was followed by their acquisition of Escotel and RPG.

Bharti made multiple acquisitions in the late 90’s to 2002. Hutchison first acquired Facel in Gujarat, and then BPL, to expand its footprint in Maharashtra, Tamil Nadu and Kerala.

Of the 15 M&A deals struck since 2005, the largest was Vodafone 67% acquisition of Hutchison Essar for $13.66 billion which placed the enterprise value of Hutchison’s mobile footprint in India at $18.8 billion in 2007.

The second largest deal in terms of valuation was more recently, in December 2008, when NTT DoCoMo bought 26% of Tata Tele for $2.7 billion, representing an enterprise value of $10.38 billion for Tata Tele.

Many Indian companies have sold stakes on more than one occasion, and between 2005 and 2008 the valuations of these companies have steadily gone up. Tata Teleservices, which received a valuation of $10.38 billion from DoCoMo in 2008, was valued at a mere $1.27 billion by Temasec in August 2006 when it parted with 9.9% stake.

Similarly, Providence and TA Associates valued Idea Cellular at approximately $3.9 billion at 2006-end. Subsequently, in mid-2008, Telecom Malaysia gave Idea an enterprise value of $7.6 billion and acquired 14.9% stake.

Two of the most recent acquisitions include Telenor in Unitech and Etisalat in Swan neither of which had, at the time of the acquisition, any subscribers or operations in India. These deals were valued at $1.7 billion and $2 billion respectively.

It is clear that India is one of the most attractive markets representing huge growth potential over the next five years. DoT, in its latest spectrum report, has forecast one billion mobile consumers by 2014. This would mean an average addition of 10 million subscribers per month for the next five years.

It is also clear that no market in the world can sustain 12 to 13 operators per circle which is currently the case in India. It is expected that in line with the M&A deals over the last three years, further consolidation is on the cards in the near future. Most telecom experts forecast three to four national players with two or three regional operators over the next two to three years as average revenues per user decline, markets start to slowly saturate, and mobile telephony moves from the current land grab mentality to a fight for switching high-paying customers between competing mobile networks.

It is, however critical that for India to move to an efficient number of market players from the present overcrowding, the government immediately start to review its April 2008 telecom M&A guidelines which place severe restrictions on inter-circle mergers within the first three years.

Bharti gets $4 bn bridge loan for MTN deal

27 May 2009, 0052 hrs IST, ET Bureau

MUMBAI/BANGALORE/NEW DELHI: Bharti Airtel is learnt to have received a commitment from Standard Chartered Bank to raise a $-4 billion bridge loan to finance its deal with MTN, said a banker close to the development.

The banker, who did not wish to be identified, said Standard Chartered has agreed to fully underwrite Bharti’s net acquisition cost. However, it has not yet been decided whether the UK-headquartered bank will put together a syndicate to finance the deal.

“Standard Chartered may or may not set up a syndicate of banks. It will take a call on this closer to the implementation of the deal which is a few months away,” he added. There is a strong possibility that a clutch of foreign banks will be interested in participating in the loan syndicate, should one be set up.

The $23-billion deal would see both companies offering equity stakes and cash to each other. In the end, Bharti Airtel will have to make a net cash payment of around $4 billion to acquire a 49% stake in MTN which will, in turn, pick up a 36% economic interest in the Indian telco.

Another banker said that the deal would be easy for Bharti, as it needs to raise 1.25 times its EBITDA (earnings before interest, tax, depreciation and amortisation) to finance the deal. The country’s largest telco’s EBITDA stood at $3.19 billion in the last financial year. Its net debt was $1.4 billion, while debt-equity ratio was 0.2 in FY09. The enterprise value — market cap plus debt, minus cash and cash equivalent — was $33.8 billion on Friday’s closing.

“It’s an easy deal for them to do financially. The regulatory challenges are far more complex than the financing one. For Bharti and its advisors, dealing with regulatory issues were the priorities while structuring the deal,” this person said.

These bankers said that it was possible Bharti might also use some cash from internal accruals. In that case, the bridge loan from Standard Chartered would come down proportionately. The bridge loan would have a one-year duration. Normally, a bank charges anything between 0.5% and 1%, as fees for underwriting such a big deal.

When contacted, a Bharti spokesperson said: “We have not yet decided on the specifics of funding for this proposed transaction. However, our debt requirement is quite low and we do not consider that funding will be onerous.”

The proposed deal will not trigger an open offer, as it will be implemented through what is referred to as a scheme of arrangement between the shareholders of both companies.This means both companies will need to obtain approval from their shareholders before going ahead with the deal. This is a departure from a plain-vanilla takeover, where no such permission is required by either the target or the acquirer, said a legal eagle who has been associated with many M&A deals.

One of the bankers quoted earlier said that while Bharti and its advisors had taken great care in structuring the deal, the only problems that could possibly emerge were regulatory ones. The transaction, as reported by ET, would need clearances from India’s Foreign Investment Promotion Board (FIPB) and the Reserve Bank of India (RBI). A number of Indian Cabinet ministers have publicly praised the deal in the past two days.

Standard Chartered is Bharti’s advisor, while Merrill Lynch and Deutsche Bank are advising MTN. SingTel is being advised by Goldman Sachs.

The cash-cum-share swap deal is comparable with last year’s three-way transaction between UK’s Scottish & Newcastle (S&N), Danish beer maker Carlsberg and Dutch beer firm Heineken which saw Heineken acquiring a 37.5% stake in Vijay Mallya’s United Breweries. Heineken was exempted from the mandatory 20% open offer in India as it acquired stake in UB through a scheme of arrangements between the companies. The legal expert said that such a deal normally requires court approval.

Telecom sector leads M&A activity in India

Thomas K Thomas on The Hindu Business Line dated 27 May 2009

New Delhi, May 26 The telecommunication sector has been a significant driver of mergers and acquisitions (M&A) in India accounting for the highest share of deals at 18.6 per cent and 22 per cent during the last two years with values of $5.7 billion and $11 billion in 2008 and 2007, respectively. If the $23-billion Bharti-MTN deal goes through, then the trend is expected to continue this year as well.

Mr Bundeep Singh Rangar, Chairman, IndusView Advisors Ltd, says: “This one deal worth $23 billion will almost match the value of the 280 cross-border mergers and acquisitions last year at $25 billion. It marks the grand entry of India as an acquirer in the international telecom industry, just as previous years saw India Inc. buying into international steel, auto and IT industries.” The value of M&A deals during the first four months of 2009 totalled $2 billion.

There have been a string of investments in Indian telecom companies since last year. This includes the deals between Tata Teleservices Ltd and NTT DoCoMo, Inc.; Unitech Telecom and Norwegian telecom firm Telenor ASA at $1.36 billion; Swan Telecom and Emirates Telecommunications Corp (Etisalat) at $900 million; and Bahrain Telecommunications Co and S Tel Ltd for $225 million.

Next in line
The Bharti-MTN deal could trigger similar deals in the Indian telecom space. Other operators, including Reliance Communications, Loop Telecom, Datacom, Idea Cellular and Aircel, could be the next to strike a deal with a foreign player.

A number of international operators, including AT&T, Kuwait-based Zain Group, Qatar Telecom and Telecom Italia SpA, are looking to enter the fastest growing telecom market in the world. Analysts say that M&As in the Indian telecom space could pick up pace because on the one hand domestic players are looking at foreign money to fund expansion plans and on the other international operators are exploring ways to move into emerging markets with their home market reaching saturation.

India set to have 1 bn mobile users by 2014

26 May 2009, 1209 hrs IST, Shalini Singh, TNN on http://www.economictimes.com/.

NEW DELHI: One of the most important reasons for Bharti to emerge as a frontrunner for equity stake in MTN is its leadership position in India projected to be the world’s ranking market in just a few years.

DoT, in a first ever forecast of mobile penetration across India for the next six years, has projected a billion mobile phones by 2014. This forecast is part of a spectrum committee report prepared by the DoT that is expected to be made public after the new telecom minister takes office.

It is well established that India has had one of the most remarkable growths in mobile phones since the sector was first opened to private investment in 1994. From two operators in each circle in 1995 the country now has 12 to 13 operators. Of these, about six to seven are fully functional, offering the Indian consumer unprecedented choice and low tariffs.

India has also been breaking all types of records on new subscriber additions in the last two years by adding up to 8 to 10 million phones a month, sometimes more. The latest report of the DoT put together by its committee shows that India will reach the half a billion mobile mark by 2010 and within four years reach 1 billion mobile subscribers.

In 2014, India’s population is expected to be 1.26 billion, with mobile penetration of 1.01 billion the mobile teledensity would be 80% above. It would mean 8 out of every 10 Indians will have access to a mobile device.

This probably reflects the world’s largest new growth opportunity over the next five years, surpassing China’s potential. China is already at nearly 700 million mobile phones as compared to India’s 400 million. The fact that India will add more than 600 million new subscribers must rate as the biggest subscriber adds for any country in the world.

Some of the imperatives to reach this figure would include redefining spectrum allocation and pricing policies, early 3G auctions, and reviewing the M&A norms. It is clear that no country in the world can sustain a fragmented telecom market of 12 to 13 players per circle. In the end, the market will have to consolidate to between three to four national players and two or three regional players with an average subscriber base of approximately 150 million each by 2014.

Bharti-MTN deal biggest M&A activity in India’s history

25 May 2009, 1828 hrs IST, PTI on http://www.economictimes.com

NEW DELHI: The proposed $23-billion mega deal

between Bharti Airtel and South Africa’s MTN would be the biggest ever M&A transaction involving an Indian company.

The potential value of the Bharti Airtel-MTN deal, which would involve a complex structure in which both the entities would pay cash and stock for stakes in each other, would amount to $23 billion.

This would be the biggest M&A deal involving an Indian entity, prior to this the largest deal by an Indian company so far has been Tata Steel’s takeover of European steel major Corus for $12.2 billion. This is followed by British telecom giant Vodafone’s purchase of controlling stake in Indian mobile service provider Hutch Essar for about $10 billion.

As per the exploring agreement, MTN and its shareholders would acquire around 36 per cent economic interest in Bharti Airtel. While, the Sunil Mittal-promoted Bharti Airtel would acquire 49 per cent stake in South African telecom giant MTN.

According to global consultancy major Grant Thornton Partner and Head, Mergers and Acquisitions

Pankaj Karna, “If you have the capital and an organisational mindset to manage them, the downturn represents a great time for M&A as long as you play it close to your core business and leverage on your market knowledge and sector strengths.”

Global telecom M&A deal volume touches $49 bn: Dealogic

15 May 2009, 1820 hrs IST, PTI on Economic Times

NEW DELHI: Merger and acquisition volume in the telecom space worldwide stood at $49.2 billion so far this year driven by the US-based Frontier Communications’ $8.6 billion acquisition of Verizon Communications.

As per global deal tracking firm Dealogic, global telecom volumes in 2009 stood at $49.2 billion through 410 deals. This, however, represent a 29 per cent decline from its year ago period. In the corresponding period in 2008, there were 549 telecom deals worth $69.8 billion.

The Frontier Communications’ $8.6 billion acquisition of Verizon Communications is the second largest Telecom deal so far this year. The largest Telecom deal this year is DIRECTV Group’s $14.7 billion acquisition of Liberty Entertainment, announced at the start of the month. Global telecom M&A deal volume touches $49 bn: Dealogic

An analysis of telecom deals across the world shows that the US is the most targeted nation for telecom M&A with $28.9 billion so far this year, up 17 per cent from $24.5 billion in the corresponding period in 2008.

The the second most attractive market in terms of telecom M&A activity is Australia with deals worth $8.2 billion, up from just $47 million in 2008 year-to-date.

“Two Australia targeted telecom deals of over $1 billion were announced this year with the Canada Pension Plan’s acquisition of Macquarie Communications Infrastructure for $4.8 billion and Vodafone’s acquisition of the Australian telecommunication business of Hutchinson Telecom for $3.1 billion,” Dealogic added.

JP Morgan leads the M&A advisory ranking for telecom targeted M&A in 2009 YTD with $29.7 billion, followed Goldman Sachs with $23.7 billion and Morgan Stanley with $19.4 billion. “Global completed M&A volume reached $482 billion in 2009 year-to-date (YTD), down 42 per cent from $829.3 billion in 2008 YTD,” Dealogic said. The number of such deals has also come down with only 6,693 deals registering so far this year, against 10,182 deals in 2008 YTD.

DoT reviewing M&A guidelines

May 2009, 0026 hrs IST, Shalini Singh, TNN

NEW DELHI: The telecom sector is set for consolidation in mobile telephony with DoT sources revealing that a special committee set up to re-evaluate spectrum pricing is also reviewing the M&A guidelines.
If the renewed guidelines come through in the next few months it will indicate an important shift in policy direction. Presently, the M&A guidelines discourage mergers between two operators holding mobile spectrum. Confirming this, a senior DoT official told ToI, “The DoT is reviewing the M&A guidelines of April 2008.” The DoT in its report has noted that “issuance of many licences and spectrum has fragmented the spectrum space beyond optimal limits. In this scenario, a policy approach would be to have an enabling policy, so that consolidation of the market and hence spectrum takes place through merger of licences and transfer of allotted spectrum from one licensee to another.” The department is considering a transfer fee to ensure that the “licensee does not make a windfall gain simply by trading his scarce commodity.” According to the report, the government has to cede its assumed role as an arbitrator of appropriate use of spectrum to the market, retaining some very broad discretionary powers in the event of gross violation of licence conditions. Secondly, the government will have to accept moderate windfall gains to operators by allowing trading with an associated transfer price. Current M&A guidelines discourage mergers by requiring surrender of spectrum with a merged entity if the subscriber numbers do not support the total spectrum. This condition will be done away with as India slowly moves away from subscriber-linked criteria for spectrum allocation. As a result of the M&A guidelines new companies, like Loop and Datacom were unable to merge their businesses with existing operators or combine with new entrants. The change will now allow such companies to sell their licences and spectrum to not only new entrants as in the case of Unitech/Telenor and Swan/Etisalat but also some existing operators who are facing scarcity of spectrum. Before the 120 new licences were given the average GSM spectrum per operator was at 7.4MHz. This has come down to 5.7MHz in the current scenario. As the M&A guidelines fall apart, it is quite clear that India will once again settle at six to seven operators with about five pan-India operators and a few regional players.