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New Delhi, Sept. 29: UAE-based telecom major Etisalat is considering mergers to expand its business in India after the government here rejected its move to acquire a controlling stake in its local joint venture.

Sources said Etisalat wanted to grow inorganically through mergers and acquisitions. Etisalat owns 45 per cent in Etisalat DB, a joint venture with India’s DB Group.

Etisalat DB, which got its mobile licence in 2008, is yet to start commercial services.

The company has soft launched under the Cheers Mobile brand in June but has only 40,000 customers.

Etisalat is talking to various operators in India to forge agreements within the next year, chairman Mohammed Omran said today.

“In terms of customers, we’re at a very initial stage in India, and we’re evaluating opportunities where we see value,” Omran said.

While Reliance Communications and Idea Cellular are two operators that Etisalat seems to be in talks with, sources said Batelco-owned STel was also an option.

STel operates in six circles — Himachal Pradesh, Bihar, Orissa, Assam, the Northeast and Jammu and Kashmir.

After the merger, the combined entity can have up to 14.4 megahertz (MHz) of spectrum but will have to surrender or pay additional fee for spectrum in excess of 6.2MHz in each circle to the government. Etisalat DB owns 4.4Mhz of spectrum across all 15 circles.

Analysts said as the three-year lock-in period for sellout by new operators was set to expire next year, a consolidation in the Indian telecom sector was likely to start then.

Earlier, the telecom minister had said he was open to providing an exit route to new operators.

The DoT was examining several possibilities, including allowing new companies to merge with larger operators; shortening the three- year period during which the promoter of a new company cannot sell out; and allowing incumbents to retain airwaves held by these new companies if a buyout or merger occurs.

The Dubai-based company, which is keen on increasing stake in its Indian joint venture, is planning to approach the Foreign Investment Promotion Board (FIPB) again with the plan to raise its shareholding in Etisalat DB by 5.27 per cent.

Etisalat bought a 45 per cent stake in the erstwhile Swan Telecom in September 2008 and sought FIPB’s approval to increase this to over 50 per cent.

Etisalat wanted to buy the 5.27 per cent stake held by Chennai-based Genex Exim Ventures in Etisalat DB for around Rs 380 crore.

Indian telecom companies can have a foreign stake of up to 74 per cent with government approval.

However, after debating on Etisalat’s proposal for months and seeking additional security-related information, FIPB rejected the proposal citing “technical reasons”.