Study on mergers and acquisitions in Indian mobile telecom industry

Abstract

The Indian telecom industry is the fastest growing industry in the world. The teledensity in this country reached 35% in January, 2009. This coupled with the rising GDP of the country makes it one of the hottest destinations for telecom operators. In the study we looked at the all the inward & outward M&A deals to understand the factors which had impacted M&A activity in this sector. For this we segregated the deals in 4 categories: i) Inward (Foreign companies acquiring stake in Indian companies) - Completed ii) Inward – Pending & rumors iii) Outward (Indian companies acquiring stake in overseas companies) – Completed iv) Outward - Pending & rumors The main focus of studying the deals in these groups was to understand the intent of the deal, both from acquirer & target’s point of view. All the deals were also classified in one of the four categories- Market Entry, Expansion, Acquisition of expertise & Market learning. Following are the observations that emerge from the study: a) New Telecom policy 1999 provided a big impetus for M&A activity in India as it increased number of players per circle and moved the industry form fixed license fee to revenue sharing. b) Two distinct trends are predicted for future growth in telecom Industry a. Metro Cities: Advanced technologies (3G, etc) will increase the ARPU. b. Other circles: Subscriber base will rise but ARPU will continue to fall. c) Indian companies are tying up with foreign companies to benefit from their technical expertise and experience in advanced technologies. d) Indian companies are going to developing overseas market to export their low cost model to these markets. e) Though the M&A activity might not be as high as it were in first part of the decade, there will be a long queue of foreign market entry seekers. f) Due to this disparity in demand and supply, the valuations of companies with license and spectrum will be very high. g) Indian companies would want to reach overseas emerging economies before European companies enter those markets.