Saturday, June 26, 2004

Telecom: Consolidation in the telecom market

News from The Hindu

The latest mega acquisition in the mobile telecom space is Hutch acquiring Aircel (Chennai and Tamil Nadu circles) for supposedly Rs. 1,600 crores.

Since the liberalisation of the mobile telecom space in terms of mergers and acquisitions, there have been a few smaller deals. Bharti acquired Hexacom in Rajasthan circle and Idea Cellular acquired Escotel in Uttar Pradesh West, Haryana and Kerala. Aircel itself acquired RPC in Chennai and thereby enhanced its value, when Bharti, Idea and Hutch aggressively tried to buy Aircel. In the end Hutch has won, but at a fairly high premium.

The telecom space is getting clearer now with these acquisitions. The dominant players in the GSM based mobile delivery are Bharti's AirTel, Hutch and Idea, with Govt. controlled BSNL/MTNL. In the CDMA space, Reliance and Tata Teleservices rule. These six together will be fighting a pitched battle for the supremacy of the mobile space.

They are only two other players outside the above six who still continue: BPL in Mumbai, Maharashtra, Tamil Nadu and Kerala circles; Spice Telecom in Karnataka and Punjab circles. BPL groups mobile operation has been loss making (despite their Mumbai circle operation), and Spice may also not be making any profits. They would do well to quit as soon as they can if they get a good price.

Even amongst the six dominant players, Idea will be hamstrung by Tata group's involvement who are aggressively pushing their CDMA based Tala Teleservices, while BSNL/MTNL will always struggle with Govt. decision making process and the inherent delays in that.

Hutch may struggle a bit from its pure play mobile operator model. Reliance seems to have clearly decided on an organic growth model.

Issues to look at in future:

- IPO of Hutch
- Idea's future plans and whether Birlas and Tatas will exit. Idea is also planning an IPO
- Reliance's growth plans. Reliance Infocomm may look at a listing as well in future
- Tata Teleservices - VSNL - Tata Teleservices Maharashtra merger?
- Bharti's acquisition plans

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