What's Up?

It all started with the Telecom Regulatory Authority of India's
(TRAI) announcement that it will not support any cap on the number of service
providers in a circle. Once it was announced, DoT was flooded with applications
from real estate players to cable operators, from steel companies to electronic
and home appliances companies, from aviation industry to financial institutions,
and a whole lot. Within few weeks, there were more than 500 applications and DoT
has to finalize their status, scrutinizing them based on the criteria proposed.
Also, apart from these new applications, some twenty-two applications were
biting the dust at the Sanchar Bhawan for years.

Finally the D-day came on January 10, 2008 when a total of 121
LoI (Letter of Intents) were issued to some nine companies. DoT issued the
universal access service license (UASL) to five new companies and four existing
players, under which licensees are allowed to roll out telecom service in any of
the technologies available. It can also provide Internet telephony, Internet
services, and broadband services. Also, DoT has given Reliance Communications
and Tata Teleservices crossover technology permission, meaning they can also
roll out services under GSM technology.

The companies who got license are Unitech, Videocon, BPL, Shyam
Telecom, Swan Telecom, STel, Spice, Idea Cellular, and Tata Teleservices. Real
estate major Unitech Group through its eight subsidiaries and Videocon through
its subsidiary, Datacom Solutions, have got LoI for a pan-India license-for
all twenty-two service areas. Also existing players like Shyam Telelink who is
already operational in one circle, Rajasthan, has got LoI for twenty-one
circles, Spice has got four, Idea has got nine, and Tata Teleservices has got
three. Also, Loop Telecom has got LoIs for twenty-one circles. Besides, hitherto
unknown entities like Swan Telecom and Stel have got LoI for thirteen and six
circles respectively!

But, why everyone is heading toward telecom? It is because of
the sheer size of the Indian telecom market. According to VOICE&DATA annual
survey V&D100, the cellular services industry for FY 06-07 was estimated at
Rs 56,183 crore and the industry is growing at the rate of more than 60%. With a
current population of more than 1 bn and a teledensity of nearly 20%, it is not
a surprise for the new entrants to visualize the huge potential.

Not to forget, India is the fastest growing mobile market in the
world, adding over 8 mn new subscribers a month. This is the same market where
valuations of both Reliance Communications and Bharti Airtel have touched nearly
Rs 200,000 crore. Vodafone, with its Rs 3,52,000 crore market cap (its India
business is valued at Rs 72,000 crore), is the third largest player. Then there
is the big house of the Tatas, who are a big player in the CDMA domain with
revenues expected to touch nearly Rs 100,000 crore and growing at 20% yearly. It
is certainly a market worth the big fight.

The new and existing licensees have long-term business plans in
their mind.

Unitech

Real estate major Unitech, which was awarded a pan-India telecom license
through eight subsidiaries, entered the telecom space because it has money and
real estate players. They entered real estate business leaving their past
business seeing the potential in real estate market. Now they see the same
picture in telecom. Also, the margin in the real estate business is coming down—it's
now somewhere between 25-35% whereas in telecom the profit margin is between
50-60%, according to Gartner. In case of Unitech, apart from the capacity of
raising money in the market, what gives it the confidence of getting a sizeable
pie of the Indian telecom services market perhaps, is its experience in getting
the job done simply by outsourcing every single segment to a qualified and
expert contractor. Unitech also wants to follow the same model in mobile
services business. "Outsourcing is perhaps the safest and quickest way to
roll out service. There is also vendor financing available in the market,"
says Sanjay Chandra, Unitech MD.

"We are #3 and #4 in some circles where I'm expecting to get spectrum which will enable us to roll out services in next couple of months"	"Outsourcing is perhaps the safest and quickest way to roll out service. There is also vendor financing available in the market"
Umang Das, MD, Spice Communications	Sanjay Chandra, Unitech MD

The company is looking at providing GSM services in twenty-two
circles, and its main focus area could be the rural market as every operator is
looking at this untapped market as a goldmine. It is in talks with national and
international companies with expertise in telecom domain for a partnership and
ready to offer up to 49% stake to its international partner. The company is
expected to start the process of structuring its telecom business as soon as its
ongoing fund-raising exercise for its real estate business is complete.

STel

STel, a 51:49% joint venture between Skycity Foundations and Telecom Investments
(Mauritius), has got DoT's nod to operate in six circles—Assam, Bihar,
Himachal Pradesh, J&K, North East, and Orissa. And, the company was much in
the news recently for many reasons, mostly for slamming DoT for not approving it
to operate in all twenty-two circles and making a generous gesture of offering a
hefty amount of Rs 13,752 crore as spectrum charges for a period of 10 years.
Telecom Investments (Mauritius) has invested in the Indian telecom market in the
past. Industry sources say NRI entrepreneur C Sivashankaran, who sold Aircel to
Telecom Malaysia for $1 bn in 2006 and Barista Coffee chain to Italy's Lavazza
for $125 mn, may be behind this company.

The company has some big promises for consumers. In a letter to
DoT, it expressed its ability to offer local call at 30 p/min for up to ten
years, without ever changing its tariff plans. "We will roll out services
within six months of getting spectrum. We'll offer services through latest
Femtocell, Picocell, and frequency-hopping technology," says Santhosh
Robert, director, STel.

Femtocells and Picocells are small home base stations being used
for providing cellular coverage where conventional coverage is low. According to
ABI research they will attract more than 10 crore users in the next 5 years
globally. This Femtocell base stations once installed in homes or buildings will
hook up to a broadband connection to improve network coverage indoors. Many
operators globally have already started trials. The business proposition is that
these technologies would help operators in saving huge amount of money from
having upgrade to wired connections to homes and buildings getting low signal
coverage. Also, this will help operators push rich media services onto mobile
users. Indian operators are saying that they are waiting this to happen and if
this becomes successful, they will definitely follow.

Though STel is set to cater to all categories of customers, it
will mainly focus on rural India. "Our main focus areas would be the rural
market and empowering the developing community, particularly women," says
Robert. This company has earmarked an initial investment of Rs 10,000 crore for
its telecom service rollout.

Datacom

A $5 bn company and Indian consumer electronics major Videocon group has
also got pan-India license through its affiliate Datacom. A recent company
release says that it would launch its mobile service by the end of this year.
What gives the company this much of confidence is perhaps its association with
US telecom major Verizon. Verizon Business holds a 74% stake in the joint
venture, called Verizon Communications India. Verizon Business already holds an
NLD/ILD license in India.

If Videocon selects Verizon for the mobile venture, then Datacom's
search for a telecom domain expert is over. The company also says that a number
of local and global banks and financial institutions have expressed interest in
providing fund, non-fund, and service based support to the project. But from a
recent release by the company where it said that they are looking at 10 mn
subscribers in 3-4 years time, the Videocon subsidiary Datacom looks quite
pessimistic. Taking into account that India adds nearly 8 mn subscribers per
month and the biggies like Bharti Airtel and Reliance Communications adding
nearly 2 mn per month, an expectation of about 2.5 mn for twelve months doesn't
sound very appealing.

For the new entrants, the biggest challenge is perhaps branding
and marketing of their products. But that doesn't look like a problem for
Videocon. It can push Datacom through its already existing dealer network of
over 10,000 to reach out customers and it is already a well-accepted name in
Indian household. What they need to do is to become more aggressive in pushing
the services into the niche markets and rural India.

Swan Telecom

Swan Telecom grabbed the maximum attention in the telecom circles because
Anil Ambani-controlled Reliance Communications lists Swan Telecom as one of its
long-term investments in its annual report 2006-07.

Swan telecom has got license in thirteen circles. If Swan were
really backed by Reliance Communications, industry experts doubt if Swan would
launch its services as Reliance Communications has got permission to go the GSM
way and also recently got spectrum in fourteen circles and it is already doing
GSM business in other eight circles, thus making it a pan-India player.

Reliance Communications has GSM services in eight circles
through its subsidiary Reliance Telecom. When Reliance Communications applied
for crossover technology, which allows a CDMA player doing GSM business and a
GSM player doing CDMA business, it was not very sure whether a dual technology
would be approved by DoT.

As the GSM lobby, COAI, went ahead to approach first TDSAT and
then Delhi High Court against the crossover technology, Anil Ambani perhaps
wanted to keep the other options open to get GSM license through a different
company. And if Swan Telecom is really a Reliance Communications-backed company,
Reliance Communications becomes a pan-India GSM player. Reliance Communications
has invested more than Rs 1,000 crore mostly through quasi-debt. So Reliance
Communications might not want to invest in Swan anymore. May be they can utilize
the spectrum if Swan gets any.

Loop Telecom

One more company that has got license to operate in twenty-one circles is
Loop Telecom, a BPL Mobile Communications group company.

Identity and ownership of this company is however not very clear—or
at least, that is the impression one gets after speaking to some key officials
there. While the official spokesperson of BPL Mobile accepts that Loop is a BPL
outfit, Loop Telecom advisor DB Sehgal, refuses to discuss this issue. Other
sources outside as well as inside BPL Mobile say that Loop Telecom is a BPL
Mobile group company. Though Essar Group has acquired BPL Mobile, which has
operations in Kerala, Maharashtra and Tamil Nadu in 2006, the head of corporate
communication of Essar group denied that they have anything to do with Loop
Telecom.

In September 2007, BPL Mobile's CEO and director S Subramaniam
expressed desire to expand, saying: "We need a larger footprint to derive
scale economics and cost synergies in this highly competitive market. Expansion
into new circles would meet both these objectives."

BPL mobile has recently added 570 towers to its kitty totaling
to more than 1,700 in Mumbai circle and like others, waiting for the spectrum
allocation to happen. And, if Loop Telecom is indeed a BPL Mobile group company,
why BPL is re-entering the business after quitting it in 2006. Though it is not
clear who is going to fund the company, industry sources say its former chief
Rajeev Chandrasekhar could be the one.

Spice Communication

Spice Communications, a BK Modi company, has also got license to operate in
four more circles though it has applied for twenty circles which could have been
helped the company to become a pan-India operator. The denial of LoI in the rest
of sixteen circles due to 'net worth' issue, Umang Das, MD, Spice
Communications terms it as an issue of 'technicality'. Telekom Malaysia
(TM), which has 39.2% stake in Spice Communications, has demanded the DoT to
take into account its net worth while considering Spice's applications for
licenses. As per DoT, Spice failed in the 'net worth' criterion that
stipulates the net worth of the company should be a minimum of Rs 1,300 crore at
the time of application in order to get a pan-India license. Even as TM has
demanded an explanation from the DoT over this issue, Spice has already
approached TDSAT in this matter.

Umang Das was quite confident of getting license and spectrum
for the rest of the circles. Spice has received LoIs in four circles viz. Andhra
Pradesh, Delhi, Haryana, and Maharashtra.

"I'm expecting these LoIs within next couple of
weeks," he said. He is also equally confident of getting start-up spectrum.
"We are #3 and #4 in some circles where I'm expecting to get spectrum
which will enable us to roll out services in next couple of months," adds
Das. The company is operational in two circles—Karnataka and Punjab.

As they have got four new circles to operate, rolling out
services in these circles wouldn't be that difficult as these circles are
geographically neighbors to its already operating circles. Also, it wouldn't
take much time for the company to roll out service as it enjoys relationship
with vendors.

On the distribution front, the company has around 300 exclusive
distributors and over 30,000 independent retailers. As Spice Mobile phones and
Spice Communications are part of the BK Modi's, Das expects an aggressive
approach from both of these companies to compliment each other, something like
selling bundling Spice handsets with a Spice subscription. While Spice
Communications eyes to expand into other circles, Spice Mobile Phones also have
plans to launch twenty new handset models very soon.

Shyam Telelink

Indian telecom operator Shyam Telelink, co-owned by Russian services
conglomerate JSFC Sistema, has also received license for twenty-one circles. As
this company is already operating in Rajasthan on CDMA technology, now it is all
set to become a pan-India operator. For the Russian investor, it was quite
surprising news as Shyam was well below in the priority list of applicants.

Sistema has recently said to have guaranteed $520 mn of the
total $630 mn to be paid for obtaining the licenses.

The licenses will allow the company to build both mobile and
fixed-line networks, but Sistema has yet to obtain frequencies to operate them.
Sistema said the timing of frequency allocation has yet to be determined.

Though Shyam Telelink offers cellular service in its circle
currently, it has so far been focusing more on fixed service. With this
expansion, it might rethink its business strategy, as subscribers have been
going away from fixed lines for last couple of years.

Sistema, who bought 10% stake in Shyam Telelink in last
September, plans to buy 41% more. Sistema's president Alexander Goncharuk is
reported to have said that the company could invest between $4-7 bn in its
Indian telecom venture.

Idea

Idea Cellular from the $24 bn Aditya Birla group has also got license in
nine circles becoming a pan-India player. The new circles that it has added to
its kitty are Assam, J&K, Karnataka, Kolkata, North East, Orissa, Punjab,
Tamil Nadu, and West Bengal.

In 2006-07, it grew by 45% in terms of revenue and the growth in
terms of subscriber additions was 90%. When we analyze its growth from previous
years in the thirteen circles, it was not at all a bad 'Idea' to move into
the rest of the circles. As metro and 'A' circles are getting saturated, the
licenses for the newly received circles could be a boon for service providers,
as these circles are showing maximum growth and offers huge revenue potential.

RCom and Tata Teleservices

In the license race, Tata Teleservices also bagged three more licenses, thus
becoming omnipresent in all twenty-two circles. Thanks to dual technology, both
the CDMA players Reliance Communication and Tata Teleservices now become GSM
players.

So far, GSM has been a major contributor in India's mobile
success story, perhaps the biggest. In terms of break-up, GSM contributes about
77% whereas CDMA operators contribute the rest 23%. In that context, and seeing
the global trends and success of GSM business, it seems dual technology
operation is not a bad proposal. Now, with this new players coming to the
market, not only the services market would grow, but also the equipments market.
Almost all big infrastructure and equipment providers are in talks with the new
licensees for their infrastructure business. Reliance Communication seems to be
ahead of others, as it has awarded a nationwide GSM contract rollout to Huawei,
the Chinese telecom major. The contract is valued at around $600 mn.

As of now everything looks rosy. But the players, mainly the new
entrants, are keeping their fingers crossed. Everything is there—the
potential, the market, and the customer—but what about spectrum? Let's wait
and watch!

Gyana Ranjan Swain


gyanas@cybermedia.co.in