According to the Economic Times of India, domestic U.S. telecom giant AT&T is in talks with state controlled Bharat Sanchar Nigam (BSNL) regarding placing an investment, that would see the company make a comeback in one of the fastest growing telecoms sectors. With mobile penetration advancing from 2% in 2005 to over 40% in 2009, still leaving plenty of room for growth.
AT&T (NYSE: T), which has been expanding its mobile business globally, quit the Indian mobile sector in 2005, selling its 33% stake in Idea Cellular following its merger with Cingular Wireless. It received around $250 million from the stake in Idea. That stake would now be valued at around $3.5 billion. That turned out to be a strategic mistake, which the New Jersey based company looks keen to repair. CEO Randall Stephenson spent much of 2008 in acquisition talks with Reliance, Idea and Aircel Cellular parent Maxis Communications, demonstrating a real desire to take a piece of the action.
BSNL has suffered from lackluster performance, as its monopoly has been slowly eroded over time, with new entrants carving up the market, especially in the mobile sector. The launch of 3G licenses this year has seen heavyweight MNC telcos taking a greater stake in this huge growth market. Vodafone (VOD) (UK) acquired Essar, Mobile TeleSystems (Russia) entered the market via Shyam Teleservices, DoCoMo (DCM) (Japan) has formed a joint venture with Tata Teleservices (TCL) , whilst Telenor (OTCPK:TELNY) (Norway) has taken a passive route by acquiring shares in Unitech Wireless & SingTel (Singapore) has also invested heavily in Bharti Aircel, alongside Telia (GM:TLSNF) (Sweden) & BT (BT) (UK).
The Indian government reiterated plans to publicly list BSNL in July , although a firm timeframe has not been committed to. Earlier that month, BSNL chairman Kuldeep Goyal said that the company was exploring a possible stake sale to a foreign firm to raise funds to help it compete better against its domestic rivals; however, he didn’t comment on how large the stake would be.
According to BSNL’s FY 2008 accounts, the value of the company is circa $17 billion. MTNL, the second of the telecom monopolies, which operates purely in Delhi & Mumbai, currently trades on the Bombay Stock Exchange at Rs95 ($1.95) per share. BSNL would be expected to attain a much higher premium, as it is the only current national carrier and market watchers have stated that post IPO the company could be worth anything from $13 billion and $16.3 billion. Sources state that AT&T is interested in a 25% stake, so it would need to buy in with $3Bn / $4Bn to make this work.
At present BSNL is the leader in all services in its license area, with over 49 million mobile subscribers (17% market share), 35% fixed line subscribers (85% market share) and 2.5 million broadband subscribers.
I can see this coming off, as AT&T can offer extended network services and serious technical know-how to BSNL, an area in which the company has lagged. AT&T India also operates a state of the art IP MPLS network across India that will also help the Indian company to expand it’s offerings into the burgeoning Enterprise market. With the Indian mobile market set to double by 2014, this would also give access to a potentially huge subscriber base of 100 million and dare I say it, a potential launch pad for iPhone.
For BSNL, this could be a great route to forestall the new and legacy players across the sub-continent, particularly in mobile and broadband, more importantly with infrastructure restrictions, LTE could play a defining role for any telecoms carrier in India.
Granted, this is all pure speculation at this point, however, if the rumoured talks firm up, I’ll be taking a long hard look at AT&T again.
Full Disclosure: Author currently holds long positions in Vodafone and Mobile TeleSystems