Missed Call

The Indian telecom service provider cited several reasons to pull out of the
merger talks that would have created a telecom behemoth with a combined market
cap of around $80 bn and the new entity's presence in twenty-five emerging
countries.

 Difference over control of the merged entity tops the reason for calling off
talks. Bharti Airtel began talks with MTN to acquire a substantial stake in the
African telecom operator. Later, negotiations were on for a merger but ended
with MTN asking Bharti Airtel to become a subsidiary of MTN. Are Indian mobile
operators losing sheen in the global market?

 Not yet, considering Reliance Communications' interest in talking to MTN for
an alliance. Though the outcome will depend on the valuation and objective of
the Anil Ambani-promoted company, the initiatives show that the country's
operators have grown to a level where they can be more ambitious and predatory.

 Sunil Bharti Mittal, who built a telecom venture from the scratch, has lost
the bid because he was aiming to create a global telecom giant spanning
twenty-five nations without losing his company's control. Anil Ambani appears to
have similar dreams. Time will tell whether the Ambanis can pursue the deal.

Baburajan K

 If an Indian operator could convince MTN for a merger/acquisition, it could
check Vodafone and other players from strengthening their presence in emerging
countries.

 As always feared by telecom infrastructure vendors, consolidation moves by a
combined entity would ease pressure on the costs of telecom infrastructure as
the combined entity would have more bargaining power. This would result in
better wealth creation for investors, while subscribers will experience quality
services.

 Africa has already become a leading market for telcos. Indian operators,
including Reliance Communications, the Ruias-promoted Essar Group, Bharti Airtel,
and Tata Communications, have been looking for telecom assets in Africa.
Recently, Essar Communication Holdings bought a 49% stake in Econet Wireless
International, which has mobile operations in Kenya. Reliance wants to invest in
WiMax network in Africa through its recently acquired eWave World; and Tata
Communications has already established presence in South Africa through Neotel.

Africa and the Middle East have the potential to become goldmines for telcos
considering the poor telecom density and high ARPU levels (when compared with
India).

Africa had 65 mn new subscribers in 2007 alone, and mobile phone penetration
has risen from just one in fifty people in the year 2000 to one third of the
population at present. India is adding 7-8 mn subscribers a month, and
one-fourth of the population has phones.

 India, Africa, and the Middle East have similar ARPU woes. But ARPUs in many
African nations are hovering between $12-20, while ARPUs in India are between
$5-$8. Since Bharti Airtel is out of the contest, it is now Reliance
Communications' turn to show its strength. India is waiting to celebrate such a
large deal.

Baburajan K

baburajank@cybermedia.co.in