Business – 2010 likely to be a year of telecom M&As
NEW DELHI: There is a strong sign that 2010 could be a watershed year for telecom with lasting and permanent changes in the market structure and
competitive landscape. This, in turn, can affect service delivery, coverage, pace of rollout, and ultimately tariffs.
While 2009 was an excellent year in terms of addition of new subscribers and lower tariffs, new competition was cruel on the financial health of telecom companies.
A comparison of the share price of listed companies like RCOM, Airtel, Idea, MTNL and Tata on January 1, 2009 and January 4, 2010 (the first trading day of the New Year) reveals either no change or a decline in the share price of these companies. This is despite an economic recovery leading to the sensex soaring nearly 78% and clocking a 23-month high or the addition of 150 million new subscribers.
Given this backdrop, telecom stocks performed dismally. This reflects the shaken confidence of investors — both institutional and retail. It is obvious that a hostile and unpredictable policy regime facing telecom companies has been a major contributor.
Meanwhile, the Trai is likely to announce its fresh M&A guidelines with a distinct possibility that the three-year restriction imposed on mergers since April 2008 could be removed. This implies that the number of operators which were expected to increase from seven or eight per circle in 2008 when additional licences were given to 13 or 14 operators, could either revert to the original number or shrink further, depending on the M&A norms that Trai eventually supports.
However, the final targets for M&As could well be the one surprise element in the otherwise gloomy and predictable outlook. While new entrants like Loop, Datacom, Swan/Etisalat, Unitech/Telenor and S Tel appear obvious targets for mergers or takeovers, even some pan India incumbents could be potential takeover targets given the tremendous financial difficulties that they are facing.
Agrees Sandeep Barasia of Bain Consulting. “Many of the so-called ‘small’ operators in India are still part of some very large global players. Each operator will independently consider its M&A options. It will not be restricted to just the current small operators,” he said.
This is also true because unlike the West, almost all large telecom operators including incumbents in India are multi-product, multi-service companies. With the exception of Bharti Airtel, telecom is not the core offering of any of these companies even though it may contribute a sizeable chunk of their turnover.
On the other hand, upstarts like Etisalat and Telenor which have little or no market power as yet are the real blue-blooded telecom firms some even with global ranking. So it is quite possible that some of the incumbents who are expected to play a predatory role could themselves be preyed upon. It is also clear that there will be more acquisitions and change of ownership than mergers since the track record of Indian corporations to work jointly post a merger is dismal. The Tatas and Birlas who were equal partners in Idea Cellular are a case in point
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