New Delhi, Feb. 2: The shakeout is about to begin. Or is it'
The government's decision to raise the cap on foreign direct investment (FDI) in telecom to 74 per cent could spark a wave of consolidation within the industry though no one is ready to hazard a guess on how soon that might be.
Telecom titans have long been clamouring for raising the FDI cap: the ostensible reason is that it will help them shovel cash into their expansion plans, draw in more subscribers and improve operational efficiency.
What is being left unsaid is that it will also bankroll acquisitions as the Chinese walls that existed between the various telecom services completely collapse when the universal licensing regime kicks in sometime by the middle of this year.
There are already five to six top telecom operators in the country: big daddy Bharat Sanchar Nigam Ltd, its state-owned twin Mahanagar Telephone Nigam Ltd (MTNL), Reliance Infocomm, the Tatas, the Bharti group and Hutch.
Although the industry was cock-a-hoop over the decision to raise the FDI limit, they were more circumspect when asked to comment on the consolidation within the industry, which many mavens see as inevitable.
The industry expects the process of consolidation to take a few more years. In the short term, they expect the telecom players to aggressively expand networks and provide a slew of value-added services and prepare for the greater opportunities that will arise when the universal licensing regime is introduced.
K. A. Chaukar, managing director of Tata Industries Ltd, said, 'With fewer regulatory concerns, international investors will be able to accord higher priority to India.'
Who could be the first to fall'
Speculation has swirled that BPL Telecom is up for the grabs and that the promoters have been holding out for the right price.
Last December, a consortium of ST Telemedia of Singapore and TM International (owned by Telekom Malaysia) had bought Cingular Wireless' 47.7 per cent stake in Idea Cellular for $390 million. The transaction is expected to be completed in the first quarter of 2005. Interestingly, the STT-TM International combine also signed an option agreement that would allow it to purchase the stakes held by Tata Industries and the Aditya Birla group in Idea Cellular sometime in the future, subject to certain conditions being met.
Hutch and Bharti ' the two big players in the cellular space at the moment ' could deepen their pockets in preparation for the consolidation phase. Reliance Infocomm is also an aggressive player and could enter the fray at some point. Other smaller operators like Himachal Futuristic Communications Ltd and Shyam Telecom could also be up for grabs.
N. K. Goyal, president of Telecom Equipment Manufacturers Association (Tema), said, 'It will help fuel growth and consolidation in the telecom sector.'
A few industry experts said many small operators are waiting for a right price for their share and as soon as that is available the consolidation could start.
Industry leaders, on the other hand, feel that the government's decision may not necessarily lead to immediate consolidation, but would fuel the growth of the sector.
T. V. Ramachandran, director general of the Cellular Operators Association of India (COAI), said, 'It is not a big factor. There may be a marginal impact on the consolidation process. Whatever had to happen has happened.'
It is a view shared by Rajan Bharti Mittal, joint managing director, Bharti Tele-Ventures Ltd. 'It seems that six players will remain. But it is difficult to predict when that will happen,' he said.