Telecom licence rush: big builders sense a chance to de-risk business

Telecom licence rush: big builders sense a chance to de-risk business

New Delhi: The next big thing in real estate, it would appear, isn’t integrated townships or special economic zones. Instead, it is telecommunications.

Real estate companies that have played no small part in changing India’s urban topography with malls, offices and apartment buildings are lining up in droves to offer telecom services—or, more specifically, they are lining up to pick uplicences to do so.

Almost all major real estate companies in the country are among those that have put in approximately 500 applications for licences to offer telecom services with the department of telecommunications (DoT). The deadline for such applications was 1 October. Companies that have applied for licences include DLF Ltd, Unitech Ltd, Parsvnath Developers Ltd, Omaxe Ltd and Indiabulls Real Estate Ltd.

There are two reasons for this: one, because of the boom in the real estate market for the past three years, many of the developers find themselves cash-rich in much the same way entrepreneurs in West Asia find themselves as oil prices have risen over the past few years. Two, the real estate business has seen a slowdown in the past few months and telecom presents a lucrative business opportunity.

Rising home loan rates have reduced the demand for homes. There has been a 60% decline in sales (in terms of units sold) in Delhi, Mumbai, Kolkata and Bangalore, according to a report on real estate by industry lobby group Assocham.

In some cases, property prices have fallen by 20%; this can be seen in Gurgaon in Haryana and Noida in Uttar Pradesh, both part of the larger National Capital Region that includes Delhi.

Telecom services, especially mobile telephony, suffer no such problems. Currently, India has around 200 million mobile phone users. At theend of 2006, it had around 105.4 million mobile subscribers, according to the Cellular Operators Association ofIndia. That translated into a mobile teledensity of 12.7%. This number is expected to increase to 38.6% in 2011, according to a report by consultant Gartner Inc.

In the rural market, less than 2% of the population uses mobile phones. Companies see an opportunity in this.

“Telecom is a growing sector, so it made sense for us to diversify into the business," Pradeep Jain, chairman of Parsvnath, said.

Parsvnath was the first realty company to apply for a telecom licence for all 22 telecom circles into which the country is divided. .

Parsvnath has applied for a unified access services licence to offer second generation GSM telephony services (GSM is a technology platform for mobile services), IPTV (Internet protocol television), Wi-max (a wireless broadband technology), broadband and Internet services.

The company will likely form a special purpose vehicle with a foreign telecom company as a partner and financial investors for the venture. Parsvnath wants to focus on smaller cities and rural areas as the mobile penetration is low in these areas.

According to Nitin A. Khandkar, senior vice-president, research, Keynote Capitals Ltd, real estate companies are looking at the telecom business to de-risk their existing business.

“It could be that they want to bring in more stability to their revenue," he said.

“Possibly, companies are expecting some break in the growth of the real estate business. It might be a strategy to de-risk their business."

A pan-India telecom licence costs around Rs1,500 crore, and companies serious about the business would also have to make huge capital investments in telecom infrastructure. “Real estate companies have experience in raising capital. So, I don’t think they will face problems in raising funds for telecom business," Khandkar said.

DLF, India’s largest real estate developer by market value, has also applied for a telecom licence. DLF declined to comment on its plans for the business.

Unitech has applied for unified access services licence in the 22 circles through its eight different subsidiaries. “We manufacture telecom and transmission towers. So, we are already there in the telecom business," Sanjay Chandra, joint managing director, Unitech, said. Unitech is also discussing a partnership with telecom companies.

Developers say with the possibility of mobile number portability (consumers will then be allowed to switch operators without having to change their numbers) coming in, there would be lots of opportunities in the telecom sector.

“Our plans to enter telecom business is more because of the opportunities rather than to de-risk our real estate business," Chandra said, specifically identifying number portability as one suchopportunity.

Real estate companies could also benefit by sharing telecom towers and other infrastructure with existing telecom operators.

However, developers’ ambitious plans of entering the telecom business could face a setback because of the lack of spectrum (or airwave frequencies). There is a shortage of spectrum and the issue will be fully resolved only after the defence ministry vacates 55 MHz of spectrum; the government is also yet to decide on how this spectrum will be allocated.

And while the Telecom Regulatory Authority of India has suggested that there should not be a cap on the number of telecom companies operating in a circle, existing telecom operators are demanding one.

Following the rush for telecom licences, the government on 4 October said it would frame a new set of guidelines for issue of telecom licences and spectrum allocation in the next 10 days.

A committee has been formed by communications and IT minister A. Raja to look into the details of applications and issues related to spectrum. DoT will scrutinize the applications for telecom licences once the committee comes up with fresh guidelines relating to spectrum allocation and the minimum net worth of the applicant.

However, Raja has said the DoT will be selective in awarding telecom licenses.

Real estate companies will have to wait and see if they get what they have asked for.