Indian telecom never had it so good. Boom in mobile penetration, upsurge in broadband take up and emergence of telecom product companies-all have resulted in telecom being the favorite sector for the private equity (PE) firms and venture capitalists (VCs).

According to a study by Venture Intelligence, a domestic company that tracks private equity and venture capital deals, India was flushed with 329 VC and PE investments worth a total of $5.9 bn in the first nine months of 2006. Of this, the total PE investment attracted by the Indian telecom sector in 2006 stands at $1.34 bn, with a majority going into late-stage companies.

The answer to this phenomenal increase in investment is in the air, literally. The Indian telecom subscriber base is growing at approximately 6 mn subscribers per month-the highest in the world! By 2008, India will be the second largest mobile market in the world.

Sankalp Saxena, chairman & CEO, Moveo Systems, voicing the enthusiasm of the startup community in the telecom space, says, "With such opportunities for growth in the telecom sector, heightened activities and investments were anticipated and are being realized now. It is encouraging to note that VC and PE players are looking to get involved in the Indian market opportunity from the grass-root levels."

Hot Favorite!
The first sign of investment interest in Indian telecom can be traced back to 1999, when New York-based Warburg Pincus backed regional carrier Bharti Airtel with a whopping $300 mn investment. Arun Natarajan, founder & CEO, Venture Intelligence opines that this is really what triggered off PE activities, "The phenomenal gains that Warburg Pincus realized on its $292 mn investment in Bharti-Airtel is attracting a slew of new private equity firms to the country." Over the past few years, Warburg has sold the stake for a total of $1.6 bn, and its exit from Bharti-Airtel was completed in October 2005.

According to an estimate, almost 44 US based VC firms are seeking to invest in India which is likely to garner $4.4 bn, and telecom is one of the key sectors that features highly on the list of probable.

Last year, a group of VCs from the UK and Continental Europe completed a fact-finding visit to India in their first big show of interest in a market that has been dominated by the US and domestic companies. Over 50 delegates from European companies including Logitech, 3i, SAP Ventures, and Nokia Ventures toured India looking closely at domestic companies in the mobile applications, network infrastructure, e-retailing and e-learning businesses, as well as at outsourcing for their own operations.

And there is no letting up in the heated PE activities as big investors such as Carlyle and Blackstone Group are on the prowl with private funds possibly buying into unlisted mobile telecom firm Hutchison-Essar. "The Indian telecom growth continues to be very strong particularly driven by the wireless growth and expected growth in data traffic. Investment opportunities exist in various segments ranging from infrastructure to value added services," points out Dr Kumar Shiralagi, general partner, NEA-IndoUS Ventures, a new venture capital fund dedicated for India investments, especially the start-ups.

Eye-catching Deals
The most significant mobile telecom deals this year included the $950 mn plus investment raised by Idea Cellular from PE firms like Providence, Citigroup, ChrysCapital, Spinnaker and Sequoia. As a testament of the growing importance of mobile value-added service (VAS), in 2006 alone at least six key investments were made-into Mauj, IMI Mobile, JiGrahak, Paymate, OnMobile and Moveo Systems.

The average investments in early and mid-stage companies are anywhere between $2 mn to $7 mn. OnMobile clinched one of the significant late stage investments worth $27.8 mn. Among the startups, Moveo Systems secured a sizeable seed fund of $1 mn in August from executives across multi-national and Indian companies, like General Electric, IBM, FeatherLite and others.