Mergers & Acquistions

It was billed as the mother of all mergers in corporate
India. Putting to rest all rumours that have been doing the rounds in the
industry for almost a year, Birla-Tata-AT&T and BPL communications have
signed an agreement to consolidate their operations.

This mega merger of titans has resulted in a cellular
behemoth, with a subscriber base close to one million, constituting over 24
percent of all cellular users. The footprint area of this JV would cover 38
percent of the country’s population and 51 percent of all fixed line
operators. What is even more mind-boggling is the estimated value - $2.1
billion, which is likely to attract significant investor interest. The relative
equity is pegged at 49.3 percent for the BPL consortium and 50.68 percent for
the Birla-Tata-AT&T combine. With one single stroke, this merger has
dethroned Hutchison as the largest operator and created a deep chasm within
Bharti, another major which dreams of pan-Indian coverage through aggressive
acquisition.

One of the obvious features of this merger is that the Indian
cellular industry is finally taking a cue from global trends. Unlike in many
countries, the cellular service industry in India was fragmented at the outset
with a motley crew of players. In 1994-95, cellular licenses were won by a
number of leading industrial houses along with lesser-known entities. Now, only
a few of them remain in the fray. Analysts expect cellular subscriptions to
increase to 18-20 million by 2005 on account of increased competition from BSNL/MTNL
and the new licensees, declining prices and an increased pre-paid penetration.
Already, increased competition, falling prices and declining average revenue per
user have ensured that revenue growth is not commensurate with the growth in
subscriptions. With this in the background, it comes as no surprise that the
strategic initiatives of various players involve creating large regional or
near-national coverage through acquisitions of existing licensed operators and
new licenses. Building regional and national infrastructure, achieving
scale-of-economies through broad geographic reach, enhancing product offerings
and increasing customer loyalty through the offer of nationwide, bundled
cellular service, are the other survival strategies that all the major names in
the industry are aspiring to adopt.

Though the process of consolidation might have reached a new
realm, the underlying questions which comes out of the merger is this: Would
this result in quality service? Already, there are fears being expressed about a
possible cartelisation with the cellular industry’s reins being taken over by
a chosen few. With state-run entities like MTNL/BSNL failing to make any waves
despite a steep cut in air time charges and rentals, this question holds more
significance and the absence of a strong regulator could further compound the
state of affairs. Another disturbing trend in the industry are the appalling
efforts made by wireless carriers to retain subscribers. So far, the carriers’
focus has been on overall growth and new customer acquisition. A Telphia/Harris
poll suggests that in developed markets like the US, the lack of focus on
retaining customers could be costing companies $10 million to $55 million, per
year. The study has found that more than 80 percent of subscribers who switched
carriers, had been offered no incentives to stay with the carrier they
abandoned. This might cost dearly for an operator when market saturation cuts
down on overall market growth. Now, with consolidation taking place in the form
of M&As, would retaining customers and keeping them happy be on the agenda
of our operators?

MT Jeevan