AT&T Eyes 25% Stake in Indian Behemoth as IPO Draws Near

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 (TELNY.PK) (Norway) has taken a passive route by acquiring shares in Unitech Wireless & SingTel (Singapore) has also invested heavily in Bharti Aircel, alongside Telia (TLSNF.PK) (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

Comments

[Tony-64:]

I didn't make it past the second paragraph because of two factual errors in it.

First: SBC acquired AT&T in November 2005 and subsequently took on that name. From that time until July 2008 when it moved it's headquarters to Dallas, it was a San Antonio based company. It hasn't been a "New Jersey based" company for nearly 4 years.

Second: If the company "quit the Indian mobile sector in 2005", it could not have been "following its merger with Cingular Wireless". The acquisition of Bellsouth and Cingular by AT&T took place on December 29, 2006.

Errors on these two easily verifiable points makes me wonder about the correctness of the rest of this article.

en.wikipedia.org/wiki/...

Sep 03 09:57 AM

[Paul Harper:]

thanks for the corrections ... & in hindsight I should have made it clearer that the company is SBC, now operating as AT&T.

regards your second point, as part of the original takeover of "AT&T Wireless" by SBC, my timing is correct, please refer to this piece from Wikipedia : en.wikipedia.org/wiki/...

hope that allays any fears you may have about the veracity of my editorial.

Sep 03 12:35 PM

[Tony-64:]

Still not quite right. SBC did not take over AT&T Wireless. That transaction was done by Cingular Wireless in October 2004, prior to the SBC acquistion of AT&T and the subsequent acquisition of BLS and Cingular.

Sep 03 01:40 PM

[R.P.:]

Considering that BSNL is a state-owned company, AT&T getting a 25% stake will be close to impossible due to political interference, and work-force inertia. The company has not even been able to convince its work force on an IPO. The prime reason for this is the work force is highly inefficient, listing would mean accountability, and them actually working. I suspect as competition in Indian telecom will heat up over the next 10 years, the inefficient and lacklustre BSNL would become unprofitable (like most state owned Indian companies in highly competitive industries). At that point in time, an AT&T or a Deutsche Telekom can sweep in and pick up a slice.

Sep 24 01:48 AM

[Paul Harper:]

IPO is on the cards & the government has already been through this process before with MTNL, which could be looked on as a dry run.
Agree with you regards innefficiencies etc & this would be the prime mover for the govt, as unless they improve, they are sitting ducks for competition.

Sep 24 02:31 AM