Mohan Krishnan: The key drivers are de-risking the business by reducing volatility in geographies (especially to reduce the impact of regulatory changes); erecting barriers by scaling up and gaining economies of scale; and a conducive environment for M&As.

Prashant Singhal: The Indian telecom market will continue to grow. As the domestic telecom market heads towards partial maturity, only leading operators like Bharti Airtel, Reliance Communications and state-owned BSNL and MTNL are looking to expand globally. These operators already have stable operations in India, have significant market share and have depth of management expertise. Most of the other operators are currently looking at stabilising their operations in India, or are already part of a global telecom major.

Big operators will replicate the lessons learnt in India to expand internationally.They will focus on emerging markets where they can offer a low-cost model, which they use to provide cheap connectivity to Indian consumers. By catering to a diverse market like India, operators already have the necessary expertise and conviction to offer services in different countries.

Mahesh Uppal: The most important thing is ambition.For instance, the Bharti-MTN talks were driven by the company's ambition to be a global player. Once a company has attained a certain size and value in a domestic market, the next step is to look for a larger international presence. This does not mean that the issue is lower ARPUs in Indian markets. I do not think that the actual returns on investments in India are anywhere near falling, but hedging their bets is not a bad idea.

What are some recent policy changes that have impacted M&A activity in the sector?

Yogesh Kirve: The change in foreign investment regulations earlier in the year allowed companies greater leeway to raise foreign capital to fund M&A transactions. This was a crucial policy change that facilitated the Bharti-MTN deal.

There is a cap of 74 per cent on foreign equity investment in an Indian company. However, as per the revised regulations, foreign equity investments in Indian company routed through an entity controlled by Indians is not considered foreign investment. For instance, SingTel's 15 per cent stake in Bharti Airtel held through Bharti Telecom (an entity controlled by Indians) is not counted as foreign investment under the revised foreign ownership rules.

Mohan Krishnan: From the Indian perspective, increased competition due to new licences increases the business risk. We have seen a downward pressure on tariffs leading to a flatter revenue curve. Globally, regulators are allowing more open regimes for M&As and this is part of the larger World Trade Organization role.

Prashant Singhal: Nearly two years ago, the Department of Telecommunications (DoT) opened the doors for new players in the mobile telephony space. While many of the contenders got licences and spectrum, over 300 applications are still pending with DoT. Once the new licensees start operations, there will be close to 10 mobile operators in each circle. However, DoT has specified a three-year lock-in period on the equity stake held by promoters of new telecom companies. This bars promoters whose share capital is over 10 per cent from selling their equity. It, however, allows new players to issue fresh equity.

The other change is that an operator cannot have more than 10 per cent stake in a competing company in the same circle. As a result, an operator will have to either pick up the entire stake or less than 10 per cent of a rival operator in a licensed circle. This move restricts the level of M&A within a telecom circle. Considering that most large operators are present across all circles, it will effectively reduce further M&A in the sector. Once the three-year lock-in period is over, the next round of consolidation is expected in the industry.

Mahesh Uppal: M&A-related activity will probably be relatively slow until the 3G auctions are held. This is because it is only after the auctions that people will get a clearer idea of both the amount of spectrum they can expect to receive or have access to in the long term, and also the kind of valuations that the spectrum will get. This will also determine the financial implications of such M&As.

What are the challenges that Indian telecom companies could face in outbound deals?

Yogesh Kirve: Telecom is amongst the highly regulated sectors in the world. Regulations pertaining to foreign ownership, foreign currency and competition could act as barriers to such outbound deals.

Mohan Krishnan: The Bharti-MTN deal is a good example. The world is still far from flat with several barriers aimed at protecting the interests of home companies. These realities will need to be grappled with and addressed with due preparation. Telecom companies also need to be extra careful of political risk given that this business has significant aspects of natural monopoly. Indian companies need to factor in additional risks, which may not seem apparent especially when seen from the lens of issues they confront in a multiparty democracy like India.

That could, in fact, be the easy part. Once operators get a licence, they will need to comply with the country's regulatory norms. These will differ from country to country. he third challenge is post-transaction management. This involves managing operations across diverse cultures. Many companies ensure that locals head the acquired unit initially so as to not affect the morale of the workforce. A good example is that of Vodafone that retained Asim Ghosh for close to two years after acquiring the operations of Hutchison Whampoa in India.

Mahesh Uppal: Usually, the foremost challenge is the one posed by new terrain or a new environment. For instance, in MTN's case, there was some miscalculation about whether the government would go along because clearly, it was a commercial deal. The deal fell through because of regulatory issues –­ characteristic of anything that involves or depends on government decisions.

Second, for such deals, the market that companies are looking for are not major European or American economies. In such markets, the risks are generally small and, in most cases, clearly defined. However, most of the times, a developing country or a smaller economy throws up surprises, which, the new foreign entrants are not prepared for. The regulatory environment is not stable. In this context, most of the markets where our players are looking for a foothold are those markets where the regulatory risk is just a bit higher than the markets with mature regulatory regimes like Western Europe and America.

Obviously, money is a challenge. Also,Indian business models are not necessarily applicable in the same way to smaller countries. So, the economies of scale that India offers are not necessarily the same as those you would find in a smaller market where the population is, say, 10 million when we add 10 million subscribers every month.

Since valuations in the sector are quite high, how do companies finance such deals?

Yogesh Kirve: It is an over-simplification to talk about valuations in the telecom sector. These valuations depend upon the country/market as well as the companies. What really matters is the valuation of Indian companies compared to their potential targets. For acquisition of relatively large, cashgenerating assets, the target company's balance sheet can also be leveraged to fund the acquisition.

Mohan Krishnan: Good valuations (and de-risking business through M&As) will only aid in raising finance for such deals especially in conditions where access to credit is not easy.

Prashant Singhal: There are two ways to fund such deals. The first is to dilute shareholding in the enterprise. The other is by raising debt. Considering that the leading operators are not heavily leveraged, it is possible for them to get a clutch of banks, domestic and global, to fund their acquisition plans.

Mahesh Uppal: The ability to raise money has, to some extent, been affected by the meltdown. This, however, is applicable more to investments that are accompanied by higher regulatory risks. In fact, only a few companies in India have said that they have not been able to carry out their deals simply because they do not have the money for it. In general terms, yes, money is an issue but the recent experience does not suggest that it was a deal breaker.

How do you see this trend emerging over the next two to three years?

Yogesh Kirve: We do see Indian telecom companies attempting to do outbound M&A deals over the next two to three years. However, doing large deals would be relatively difficult. The opportunity to do meaningful acquisitions in low-penetration markets exists only for the next few years.

Mohan Krishnan: It will only accelerate.

Prashant Singhal: Over the next couple of years, Indian telecom companies will be aggressive in acquiring a global footprint. By then, at least a couple of the leading operators will have a presence in many emerging markets. However, the window for such expansion will last for the next two-three years. If operators cannot do it now, it is unlikely they will ever be present globally.

Mahesh Uppal: We will see some level of consolidation after the 3G auctions. Once this market settles, the more ambitious players will look to enter the market. This applies, in particular, to the bigger players, including Bharti Airtel, RCOM and BSNL. In comparison, the new players are, by and large, smaller partners in existing ventures. Therefore, it will be unrealistic to think that the new telecom operators will want to look for overseas markets.

Which regions are likely to attract more interest and why?

Yogesh Kirve: Africa and Latin America could attract interest as these regions are less penetrated than others and offer growth opportunities of significant scale (due to their large geographies and population). Also, in some cases, these regions are less competitive than others.

Mohan Krishnan: Growth markets and deregulating markets (mostly located in Asia and Africa) are likely to attract a majority of the deals from Indian as well as international companies alike.

Prashant Singhal: Indian telecom operators are looking to expand in Southeast Asia (Indonesia, Bangladesh and Bhutan), Africa and the Middle East. Africa is quite similar to India with almost a billion people and a low teledensity. The opportunity for future growth is large. Also, ARPUs in African countries range from $9 to $14, which is much higher than that in India.

While Indonesia has over 50 per cent teledensity, it is a fast growing economy and should see greater demand for mobile connectivity. Bangladesh is also a high-growth market. The Middle East is a high ARPU, close-to-saturation market. However, an acquisition there will help improve the revenue stream for Indian operators.

Mahesh Uppal: There is increasing crowding in the Indian marketplace. I think that both the Middle East and Africa offer enough opportunity. This is because on the one hand, there is little competition in these markets, and on the other, these markets are expanding at a very fast pace. So I do not expect much from Indian players in either Europe or North America. But I think that they would see themselves as candidates for deals in both the Middle East and Africa.