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Several global telecom companies have begun stepping up their focus in India following the successful re-entry of Vodafone Plc of UK. Sistema of Russia entered India after it acquired stakes in Shyam Telelinks. Also, US-based AT&T, Telecom Malaysia International, and MTN of Africa are other names in talks with Indian telecom operators for deals and tie-ups. While the international players are already all set to invest in India, the dawn of 3G in the country will further boost their interests.

There are other examples of foreign players in negotiation with Indian operators for strategic partnerships, though a few might not have seen the light of day. AT&T, which exited from its cellular venture in India by selling 33% stake in Birla-AT&T-Tata, is said to be in talks with Maxis Communications to buy 74% of its stake in Aircel. Aircel has grown from a regional cellular company to a pan-India operator. MTN, after a failed possible deal with Bharti Airtel, and now Reliance Communications, seems to be caught in the corporate tussle between the Ambani brothers.

Maintaining a low profile as far as M&As go, in the past couple of year, Idea Cellular has hit a goldmine after buying out stakes in Spice Communications and getting TM International as an equity investor.

The renewed interest in India comes at a time when the domestic economy is facing unprecedented fears of inflation, global economy downturn with rising oil prices and food crisis, and the current political turmoil in India.

The immense growth in the mobile user base in India, expected to continue till 2011-12, seems to be the silver lining for global telecom companies investing in the country. During the last fiscal, the cellular subscriber base grew by 66% to touch 261 mn from 157 mn in FY 2006-07. The telecom services revenue rose by 21% to Rs 130,561 crore.

By 2011-12, it is expected that operators would have covered a large part of the yet untapped rural India, while the top 20 cities from the cellular operation point of view may face a near-saturation situation. Saturation in developed nations has forced many global companies to scout for market share in India.

Scale Matters
When Vodafone landed in India in 2007 with the billion-dollar Vodafone-Hutchison deal, operators such as Reliance Communications, Bharti Airtel, Tata Teleservices, Idea Cellular, and BSNL felt the heat (despite its troubles with partners). With 260 mn subscribers worldwide and an ambition to buy more assets in Asia and Africa, this UK-based company enjoyed economies of scale. It even pursued one of the best low-cost ultra handset outsourcing deals with ZTE to strengthen its presence in emerging markets.

The global scale assisted Vodafone to source telecom infrastructure at highly competitive rates. In FY 2007-08, the Vodafone group revenue crossed $67 bn, an increase of 14.1%, with organic growth of 4.2%. Its growth in Europe stagnates at 2%, while the growth in EMAPA is 45.1%, reflecting acquisitions in India and Turkey. Vodafone's investment in India, as part of its emerging markets strategies, made sense for the company. Vodafone Essar grew its revenue by 46.5% to Rs 15,477 crore in FY 2007-08 from Rs 10,565 crore. Its subscriber base reached 44 mn from 26 mn, showing 66.9% growth.

Venturing overseas lets operators eliminate risks. If India faces a recession, operators in India do not have enough capacities to withstand the pressure from a global operator who has business in India and elsewhere in the world.

Reliance Communications, Bharti Airtel, Tata Teleservices, Idea Cellular, and BSNL never had economies of scale as their primary focus had been on India, though Bharti Airtel, the Tatas, and Reliance Communications have attempted to pursue acquisition strategies overseas. While Reliance Communications is looking for mobile licenses in Africa and the Middle East, the Bharti Airtel group, which is focusing on both the Middle East and Africa for expansions, has presence in Seychelles, Jersey (Channel Islands), and Sri Lanka. Being a state-run company, BSNL is not even trying to build telecom assets outside India.

Though total revenue of BSNL, Bharti Airtel, and Reliance Communications is at $9.7 bn, $6.8 bn, and $4.8 bn, respectively, these companies do not make it to the top of the global telecom companies list on financial parameters. On the subscriber front, however, they are doing well. The telecom subscriber base of BSNL, Bharti Airtel, and Reliance Communications in the country stood at 72.3 mn, 70.7 mn, and 46 mn, respectively. But global telecom giants are spreading their wings faster than Indian operators and this may be a cause of concern.

“Business is all about achieving scale. And, expansion is the only option to achieve scale especially since the world has become small. Some of the Indian telecom service providers would go to foreign markets to further expand their base. Thus, if one needs to be competitive and needs to contribute to shareholders, achieving scale is a must,” Sammy Sana, country president and MD, Motorola India, says.

“Scale matters a lot in the current scenario. If cellular companies need to maintain their financial viability, they must go for expansion. A global company can advertise on a global platform that reaches India as well. This apart, large scale means huge profitability and better negotiation power with vendors,” said N Srinath, MD and CEO, Tata Communications, in a recent interview to VOICE&DATA.

Over a period of time, the $5.5 bn Telecom Malaysia group scaled up its presence in Asia through its operations in Malaysia, Indonesia, Sri Lanka, Bangladesh, Singapore, Iran, Pakistan, Thailand, and Cambodia, besides India. In FY 2007, the group revenue grew by 8.8% to $5.5 bn, mobile subscribers touched 40 mn, growing at 39.6%, and broadband users rose by 46.4% to 1.27 mn.

The group, including subsidiaries and associates, has over 44 mn mobile subscribers in Asia, putting it among the largest mobile telecommunication providers in the region in terms of turnover. It has approximately 13,000 people under employment in ten countries.

The MTN Group has spread its wings through acquisition of new operations, licenses, and strong operational performance. The group has also ensured that the country in which it intends to plunge has a strong GDP growth. With more than 61 mn subscribers in 21 countries in Africa and the Middle East, revenue of MTN grew 42% to $9.5 bn, mainly driven by revenue in South Africa, which rose by 15%, and Nigeria, which increased by 36%.

Global telecom giants' initiatives to ensure large-scale and viable operations do not stop at trimming down vendors and acquisitions. Branding is a major focus area like in the case of Vodafone Essar, which changed from Hutch soon after the deal. MTN has recently completed the re-branding of Investcom to MTN. Re-branding has helped MTN to further establish the group's leadership position across its markets.

AT&T, which is the largest telecom company in the world, with revenue of $119 bn, cannot afford to miss the telecom growth in India. In the wireless business, AT&T has its focus in the US, where it has a wireless subscriber base of more than 70 mn. It is also the world leader in transport and termination of wholesale traffic, with customers in more than 200 countries spread across six continents.

VOICE&DATA research based on ITU data