Wrong Number

After ten decades, when an Indian-Mohandas Karamchand Gandhi-in 1894 started
a movement in South Africa for the identity and rights of Indians living there,
the Government of the Republic of South Africa refused to give a go-ahead to
Bharti Airtel for a merger with South Africa's telecom giant MTN, to save its
largest telecom identity. The RSA government wanted dual listing of the company
in India, to maintain its separate identity, which Indian laws do not permit.

From the beginning, MTN was keen for a marriage with an Indian entity. It
tried to please both Bharti Airtel and Reliance Communications, in order to cut
costs and enjoy strong RoI. China Mobile, China Telecom and Vodafone also tried
to have an alliance with MTN.

After over eight months of such talks, both the companies had reached an
agreement for a $24 bn alliance to create the world's fourth largest telco,
spanning twenty-four countries and 200 mn subscribers. But the South African
government's refusal to budge from its demand-that the Indian government amend
its laws to allow dual-listed companies-acted as a precursor to the deal sealing
their fate.

Dual-listing allows companies to retain their separate legal identities and
listings on stock exchanges, while entering into equalization agreements to
collectively run operations and share profit or losses. Such arrangements are
also seen protecting the national identities of companies.

India took sixty years to become one of the fastest growing economies of the
word. The Indian telecom sector just took fifteen years to make its presence
felt across the globe. In 1994, India announced its National Telecom Policy (NTP)
which brought a revolutionary change in the telecom space. Prior to this,
telecom was a state monopoly. Indian telcos, despite operating in a low ARPU
market, have an EBITA margin of around 35%, comparable to any other operator in
the world.

MTN, which is #1 or 2 in the twenty-one countries it operates in, has a
subscriber base of 103 mn, by the end of June 2009. While Bharti Airtel-operational
in India and Sri Lanka only-stood at a whopping subscriber base of 108 mn by the
end of August 2009. The credit goes to the robust telecom growth in India.

Investors in India were also confident about Bharti Airtel despite the
failure of talks. At 11.58.00 hrs on September 1, 2009 a day after the deal was
called off, Bharti Airtel share traded at Rs 21.53 higher at Rs 440.10 in the
Bombay Stock Exchange.

The Indian telecom industry has attracted huge foreign investors, as everyone
wanted to be a part of the telecom success story in India. In the span of just
fifteen years, the telecom industry has become the third largest sector
attracting FDI. Since April 2000 to July 2009, the sector attracted $7,369 mn of
FDI in the country. Telecom is the largest sector in India to have the largest
FDI inflow in the country, after the service sector and computer software and
hardware. It contributed 8% of the total FDI inflow in India for the same
period. Some of the known global names having FDI in India include Vodafone Plc,
NTT DOCOMO, Etisalat, and Sistema Telecom.

Both Bharti Airtel and MTN lost in this race. But they will surely not keep
quiet. In the current market conditions, managing bigger assets in order to
reduce opex and capex is the order of the day.

Akhilesh Shukla

akhileshs@cybermedia.co.in