Mega telecom partnerships

In one of the biggest network management and rollout deals globally,

‘s largest GSM operator, Bharti Airtel, has awarded Swedish telecom equipment vendor, Ericsson, a $1 billion outsourcing contract for network management services. Deals such as this, along with the hyper growth, have propelled our telecom sector and operators into global limelight. High sunk costs, rapid technological advances, high obsolescence and intense competition are some reasons for these mega deals and consolidation in the industry.Market access is a prime motive for such partnerships. Vodafone acquired a 10% stake in Bharti for Rs 6,500 crore to get a foothold in the Indian market to expand its worldwide presence. Conversely, Indian companies are eyeing companies outside to expand their access. Tatas recently invested $60 million for a 26% stake in InfraCo, an emerging domestic and international fiber-optic carrier in

. VSNL acquired Teleglobe International, a provider of wholesale voice, data, internet and mobile signaling services for $239 mn, to get access to Teleglobe’s network spanning the globe and having capacity in more than 80 sub-sea and terrestrial cables.

Reliance’s $211 mn acquisition of FLAG, VSNLs $136 mn acquisition of Tyco Global Network, and Bharti’s 8% acquisition in the $500 mn, 20,000 km, next generation undersea cable system SEA-ME-WE-4 project reflect the same intent.

The government-owned MTNL, after a successful foray into

, is actively looking at other markets, including

. Both Reliance and Bharti are in the race for the fifth mobile operator license in

. Since telecom requires large investment in developing networks, apart from market access, many companies try to achieve economies of scale and scope by buying networks from existing service providers. According to Stanley Sigman, the CEO of Cingular in the

, one of the main reasons for him taking over AT&T Wireless in 2004, in a whopping $41 bn deal, was to combine assets of these two companies to take advantage of economies of scale to be the best in the class. We witnessed Tata Teleservices buying Hughes.net to gain access to the basic services market in. Bharti acquired stakes in JT Mobile, Spice and Hexacom to get entry to the Andhra, Karnataka andcircles. In July last year, Essar scooped BPL Communications for Rs 4,400 cr to consolidate its market position in Mumbai,,,and

. Through its $66 mn acquisition of Escotel in January 2004, Idea not only gained the Haryana, Kerala and UP(W) networks of Escotel, but also acquired market access to Rajasthan and HP.

Similarly, VSNL acquired Dishnet in March 2004 for Rs 270 crore to get access to Dishnet’s subscriber base and nationwide network of cyber cafes. VSNL also acquired Tyco Global Network for $130 mn for supplementing its submarine cable-based bandwidth services.

The third major factor for the partnerships in telecom is for companies to have control over emerging technologies. Bharti’s mega deals, of outsourcing its entire network management and operations to Nokia, Ericsson and Siemens, are an example.

A reason is to transfer technology obsolescence and infrastructure upgrading risk to equipment manufacturers. Hutch followed with the outsourcing deal with Nokia. The motive behind the surprise acquisition of a 51% stake by Reliance Capital in Adlabs Films for Rs 360 cr is to use Reliance Infocomm’s nationwide fibre optic network for the digital distribution of movies produced by Adlabs.

Tech companies with niche specialisation such as Sasken Communications Technologies that builds mobile multimedia applications and codec engines, Subex Systems which specialise in advanced telecom fraud management products might well be targets for acquisitions in near future.

While we have been witnessing the above partnerships, the fourth dimension to the partnership is emerging.Technology-intensive companies are also pursuing partnerships with hedging as the main value objective. Companies are getting a stake in technologies unrelated to the core business promise. Notable ones being the recent acquisition of Luxembourg-based Skype Technologies SA, the global internet communications company, by the worlds largest online auction company, eBay, for approximately $2.6 bn.

eBay claims this brings into its e-auction business a powerful communication engine, capable of opening new lines of businesses, new monetisation models and geographies, among other things.

This euphoria over emerging technologies and associated businesses is similar to the ones witnessed over the dotcoms in the mid-90s. Whether this momentum will continue is anyone’s guess.

While telecom companies in

,

and theare vying to acquire companies outside their countries at astronomical prices, global giants such as Vodafone are divesting their stake in foreign telcos. Vodafone terminated its Japanese mobile telecom business by selling it to Softbank for $8.9 bn and is even planning to exit from the

operator, Verizon. The telecom bubble that burst and left big holes in the

telecom industry, notable ones being AOL-Time Warner, and MCI-WorldCom, is slowly gaining momentum again.

The Indian telecom scenario, as we have seen, is also abuzz with hyper growth, with associated consolidations and new partnerships. Let us hope this one,unlike the dotcom burst, is a sustainable bubble in the making!

Source- http://www.financialexpress.com

Technorati : Bharti Airtel, Ericsson, GSM, MTNL, Mobile, Reliance
Ice Rocket : Bharti Airtel, Ericsson, GSM, MTNL, Mobile, Reliance