Yesterday, France Telecom's CEO commented on the price of India's telecoms companies. He stated that while France Telecom still had the option to enter India, its choice of acquisition targets was currently restricted to smaller and cheaper companies. Simultaneously, we learned that Spice (a regional mobile operator providing services in the North East of India) had raised $128 million through an IPO that was significantly oversubscribed, even though shares were priced at the top-end of the range offered.
Following the acquisition of Hutchison Essar by Vodafone, further acquisitions in India by European telcos were expected, but in the words of Didier Lombard, these acquisitions are now likely to be 'modest'.
Ovum senior anlayst Elsa Lion comments:
With only 16% mobile penetration in Q2 2007, but with connections growth reaching 93% year-on-year in 2006, India's attraction for foreign investors is not difficult to understand. As growth opportunities rapidly disappear elsewhere, India is not quite the last frontier, but it is one of the last markets to offer long term growth for mobile operators and suppliers. In this context, it is not surprising to see India's best telecoms assets rising in value and being snapped up fast.
The rise and rise of the Indian telecoms sector has already resulted in a number of acquisitions, including the high-profile acquisition of Hutchison Essar by Vodafone. Maxis also acquired a controlling share in Aircel for over $1 billion in March 2006; Telekom Malaysia holds a 49% share in Spice; and Vodafone previously held a 10% share in Bharti Aircel.
In addition to M&A activities, many of India's largest mobile operators have now IPOed or are preparing to IPO, which may in turn result in more foreign telcos entering India. Spice is the most recent example. IDEA cellular will soon follow and others are likely to IPO in the future.
These IPOs should not be viewed as attempts to cash in on the Indian mobile hype. Indian mobile telcos are looking for funds to build out India's vast mobile infrastructure. The size of the country and its demographics mean that telcos have to continuously invest large sums in network expansion programmes to reach new subscribers, despite the low ARPU. Indian telcos award some of the largest network equipment deals in the world, as illustrated by Nokia Siemens Networks' $1bn deal with BSNL.
For many cash-poor and debt-ridden European telcos, India now comes at a very high price few will be able to afford. Future acquisitions by European operators are thus most likely to be small-scale and potentially limited to the fixed segment, which is partially sheltered from the current hype.
Elsa Lion is a senior analyst contributing to the [email protected] advisory service