Companies
Global interest for M&A in Indian telecom market is muted: Rothschild
Summary
- Albrecht Stewen said the government shareholding in Vi may not be attractive enough for acquisition by a global telco, going by past experience and the high liabilities that the carrier has towards the government.
New Delhi: India's telecom market, despite its billion-people opportunity, is unlikely to attract new global players, said Albrecht Stewen, partner and global co-head of telecom, media and technology at Rothschild & Co, citing stretched balance sheets of western companies and the tough competition posed by deep-pocketed domestic firms.
“Merger and acquisition interest from the global operators is muted, partly because of the experience, and partly because, a lot of them don't have that much balance sheet flexibility," the global sector specialist said in an exclusive interaction.
He noted the experience of global telecom operators like UAE’s Etisalat, Norwegian state-owned telco Telenor, Russian telecom major MTS and others that were operating in India in 2008 but shut down operations within a decade.
Getting foothold in India
Talking about the massive investments needed to get a foothold in India, Stewen said most global players’ balance sheets were stretched from investments made into 5G services and increasing network capacities to fulfill a increasing appetite for data.
Also read | ‘Telcos need to be sustainable to invest in networks, ensure better services’
“India has always been a big commitment in terms of investment and a lot of them are inward looking and have their hands full with their own home markets... The theme at the moment is more simplification, streamlining portfolios and running what you have as best as you can."
The Indian telecom market is dominated by three private service providers—Reliance Industries Ltd’s telecom arm Reliance Jio, Bharti group-promoted Bharti Airtel and Aditya Birla group's Vodafone Idea, where the government is also a stakeholder—and state-run carrier Bharat Sanchar Nigam Ltd.
More than 1 billion customers are split between them, paying tariffs that are among the lowest in the world despite the recent hikes.
Stewen said the government shareholding in Vi may not be attractive enough for acquisition by a global telco, going by past experience and the high liabilities that the carrier has towards the government.
“People would want a clear line of sight on a sort of path to a level of leverage that is actually sustainable," he said, noting that Airtel and Jio were already chipping away market share from the No 3 loss-making carrier that is in need of large investments to remain competitive.
Also read | Jio, Airtel and VI: Telecom tariff hikes rang a bell on three lessons
Nishant Singh, director at Rothschild & Co, noted that Reliance Jio would was unlikely to look at an overseas consumer play right now, considering that it was preparing for a possible initial public offering in the next 12-18 months.
The reverse trend
However, there was a reverse trend, with western telcos eyed as opportunities, he said, referring to Etisalat acquiring a stake in the UK’s Vodafone Group Plc—and seeking to acquire more stake—and Bharti group buying up stakes in BT Plc.
Also read | Mint Explainer: New telecom law gets partially notified. What next?
Another upside may be seen in data centres, where a number of players are active and consolidation is expected. “I believe some of the action that may shift would be on data centre where, right now you have over 20 different platforms. Two years down the line, some of the new platforms would be absorbed by the larger platforms, eventually resulting in a six-to-eight-odd-player market," Singh added.
He noted that platforms that have the backing of “global hyperscalers" and are able to get other enterprise customers will be able to build profitable businesses, and continue to compete in the market, while others were likely to get acquired.
