Is UAE's telecom giant Etisalat working on a new Idea for its India strategy? Etisalat Chief Executive Jamal Al Jarwan's rather public overture last week that UAE telecom giant is interested in Idea Cellular Ltd has raised the antennae and made some smaller shareholders in the Indian telco curious.
Aditya Birla Group (46%), Axiata (19.1%) and Providence PE (10%) are the major shareholders in the publicly traded Idea Cellular with nearly 70 million subscribers. Private equity giant Providence has been exploring the possibility of a serious approach by Etisalat. Malaysia's Axiata (Telekom Malaysia formerly) could also look at options even though it says, it is "comfortable with where we are right now".
Jarwan's comments signalling interest in Idea has firmed up the latter's stock price, besides fuelling speculation. But Etisalat, which holds 45% stake in a fledgling telecom joint venture with Mumbai-based DB Group, is yet to make up its mind on its India strategy.
Etisalat Chairman Mohammad Hassan Omran wants to crack the rapidly expanding Indian telecom market, but how to pursue it is still being debated.
"Who are the potential targets for acquisition in India and whether it should pursue organic growth for the time being are matters still not being resolved at Etisalat. All options are open right now," said a source, with direct knowledge of the developments.
A team from Etisalat visited Mumbai more than a month ago, and continued to look at acquisition led opprtunities, including Idea Cellular, in India. Its plans to talk a deal with Anil Ambani-led Reliance Communications seem unlikely at the moment.
A second source, meanwhile, said, Idea shareholder Providence PE has been ascertaining Etisalat's interest. Providence Equity Partners invested around $400 million in Idea Cellular in 2006. The TMT focused fund followed it up in 2008 with a $430 million investment in Aditya Birla Telecom Ltd, which held UAS license for Bihar and Jharkand and a stake in Indus Towers, India’s largest telecom tower firm.
An email query to Providence last week remained unanswered at the time of posting this report. It is learnt that Providence and even Axiata would firm up their positions if Etisalat takes a call on $5-$7 billion bet on Idea, sources added.
Unlike Providence, which may be exploring big buck exit, Axiata, which has maintained "buy" on Indian telecom, could be looking at stepping up its interest. One possibility would be joining hands with Etisalat in acquiring Idea (similar to Vivendi and Vodafone deal for SFR in France). Axiata, which was then called Telekom Malaysia, acquired a stake in Idea Cellular when the Aditya Birla Group promoted firm acquired BK Modi’s Spice Telecom. Axiata got a stake in the telco on account of its 39% stake in Spice and also made a fresh infusion of Rs 7,300 crore in Idea Cellular.
However, Axiata denied any such plans. In an emailed response, Axiata said: "There are no plans to do so. Our strategy with Idea is to extract the optimum value and benefit from our investment, financially and operationally, by continually working with Idea management and our partner. We are comfortable with where we are right now and there are no plans to go beyond 20%. Given all the extremely difficult challenges faced by the industry, we are happy with Idea's performance. We are also happy with our partnership with the local shareholder."
Idea Cellular and its largest shareholder Birlas have not yet responded publicly to Etisalat's overtures. For Aditya Birla Chairman Kumarmangalam Birla, Idea has been one of the success stories for his diversified group in the new service economy. Idea Cellular is not the block, or looking at stake sale, officially. An email sent to Idea Cellular and Aditya Birla Group spokesperson did not elicit a response.
But, in the last one year, Idea has been counted as one of the takeover targets in the domestic telecom industry. VCCircle had earlier reported that French communications giant Vivendi had looked at Indian operators like Aircel, Idea and Loop Telecom for a possible
M&A deal.
Aircel, which is majority owned by Malaysian billionaire T Anantha Krishnan's Maxis Communications, is open to participating in India's telecom consolidation moves. Ruia family controlled Loop and Datacom, a part of the Videocon stables, have been in the market for divesting stakes to strategic international players.
The reasons for these consolidation moves are not far to seek. India’s mobile subscriber base is projected to cross the 1 billion mark by 2014, driven by additions in rural areas, said a recent report by PricewaterhouseCoopers. The boom in the telecom sector is expected to continue for the next three to five years, driven by high subscriber additions.
This market has attracted competition and the industry has seen increasing competition with continuously declining tariffs and minimum subscription costs continuing to impact the bottom line of the incumbents. Added to this is capital requirements for 3G rollout and
expansion into newer areas.
“We believe pure subscriber growth in itself has lost relevance, as it is the revenue contribution of new subscribers that is of greater importance. Given the secular fall in average revenues per user (ARPUs) and revenues per minute (RPMs), incremental revenue and capital productivity are falling with each incremental subscriber added,” said Harit Shah of Karvy Stock Broking in a note in recently.