Global majors threaten to hang up on new telcos

MUMBAI: The government’s go-ahead for foreign telcos to bid for 3G spectrum has come as a blow for new Indian operators like Unitech Wirelss, Essar group’s Loop Telecom and Videocon’s Datacom Solutions. The valuations of these fresh 2G licensees may tumble as international operators find a new door to the world’s fastest-growing mobile phone market.

Players such as US-based AT&T, UAE’s Etisalat, Telecom Italia and Bahrain’s Batelco, who were in talks with new operators for buying stake, are now willing to pay much less than they were ready to shell out a month ago, according to industry insiders.

Foreign firms are now looking at bidding for 3G spectrum and roping in a minority Indian partner as against picking up a stake in the new telcos that are learnt to be seeking enterprise valuations in the range of $2-3 billion. “It’s better to bid for 3G spectrum and rope in a 26% Indian partner rather than pay a hefty price for being a minority partner in a new venture, which has no operations or brand name yet,” an official at an international telco told ET.

The base price for pan-India 3G spectrum is Rs 2,000 crore, or $500 million. Also, it is felt that with a wireless subscriber base of over 280 million, new operators may not be very successful in the 2G market where the cream of users has already been taken by existing players.

According to Ernst & Young India telecommunications leader Prashant Singhal, “There is a challenge for greenfield operators to demonstrate success. That is why, though many foreign players are interested in them, there could be valuation differences.”

Sources in the investment banking circles said Unitech had almost finalised a deal with Telecom Italia before differences over valuation surfaced. While Telecom Italia feels the enterprise value of Unitech Wireless is around $900 million, promoters feel it is much higher. UBS is advising Unitech on the divestment. Similarly, valuation of Datacom is said to be not more than $1 billion.

Meanwhile, it may not be difficult for the foreign operators to find minority partners for 3G operations. “The Indian partner we are seeking need not be a telecom player or with a business history in the technology sector. We may look at FMCG companies or infrastructure companies for tying up to gain entry in the lucrative Indian market,” the foreign telco official said. Besides, entities, which were denied license in the September-October 07 rush, may also be willing to become minority partners with foreign operators who are looking forward to bid for 3G spectrum, said the source.

Source : Economic Times