The Indian telecom industry has been an attractive destination for foreign investments. But it is no longer a oneway street. Indian telecom companies too are moving into the overseas acquisition space in pursuit of their growing ambitions.

Over the past two years, almost all the large telecom players have tried to establish a credible presence in the global market, in an effort to duplicate their domestic success in other developing and high-growth markets. Among the companies that have gone overseas and acquired a number of foreign telecom companies as well as telecom licences are Bharti Airtel, Reliance Communications (RCOM), Bharat Sanchar Nigam Limited, Mahanagar Telephone Nigam Limited (MTNL), Tata Communications, GTL International and Acme Tele Power. Debt facilities are generally used for financing the international expansion schemes.

Entering new markets has become an important part of the companies' business strategy. The Tatas (through Tata Communications) are the largest shareholders in Neotel, South Africa's second telecom operator. Tata Communications also owns stake in United Telecom Limited (UTL), which offers services in Nepal. Over the past two years, RCOM has made major acquisitions in the US, Europe and Africa, although it lost its bids for mobile licences in Saudi Arabia, Kenya, Egypt, Qatar, Bhutan and Sri Lanka. It also made an unsuccessful bid to acquire a fixed operator licence in Bahrain.

In 2006, Bharti bagged the licence to become Sri Lanka's fifth GSM operator.The company has been offering comprehensive telecom services in Seychelles since 1998. It also recently launched 2G and 3G services in Jersey and Guernsey in Europe in collaboration with Vodafone.The company, however, lost out on licence bids in Kenya, Saudi Arabia and Bhutan.

Popular investment destinations

The foreign acquisitions are taking place in both emerging and developed markets.While the regional carriers in rapidly growing emerging markets are very attractive targets for Indian companies that are looking for new sources of income, acquisitions in the advanced markets of Europe and North America provide access to advanced technology and a global client base.

Africa
Despite the continuing infrastructurerelated challenges and high fragmentation, the vast potential of the African telecom market has attracted Indian telecom companies over the past two years.Nigeria is the biggest mobile market in Africa with over 44 million subscribers, followed by South Africa.

Other African markets also hold a lot of promise. In December 2007, RCOM acquired a licence to provide telecom services in Uganda. According to RCOM, the Ugandan market, with 10 per cent telecom penetration, has ample scope for an operator with deep pockets and expertise to run a national network. The company is planning to invest up to $500 million for establishing a high quality, fully IP-enabled integrated telecom network. Later, in February 2008, RCOM announced the acquisition of Uganda-based Anupam Global Soft, a company holding public infrastructure provider and public service provider licences. Using these licences, RCOM plans to offer mobile, fixed line, internet, and national and international long distance services in Uganda, in addition to Wi-Max and Wi-Fi services.

The most recent acquisition by an Indian telecom company in Africa is that of South Africa-based Transtel Telecom by Neotel, in which Tata Communications has majority stake. The Rs 1.2 billion acquisition has given Tata Communications a platform for introducing its nextgeneration services for enterprises and acquiring a countrywide presence in South Africa. Transtel, which has annual revenues of over Rs 3.5 billion, owns telecom infrastructure across South Africa.

MTNL, in a joint venture with Telecom Consultants of India and a local partner, has a licence to offer fixed line services in Kenya. In the latter part of 2007, Bharti Airtel, RCOM and the Tatas had bid for acquiring majority stake (51 per cent) in Telkom Kenya. While of the three, only Bharti managed to qualify for the final round of bidding, the stake was ultimately won by France Telecom.

US and Europe
Anticipating a rapid increase in its international bandwidth requirements and in line with its plans to be a major player in the enterprise segment, Bharti Airtel joined two international undersea cable consortiums for building submarine links from Asia to Europe and the US in the beginning of 2008. First, the company joined the Telekom Malaysia-led 17-member consortium that is setting up the Asia-America Gateway (AAG) –­ the first submarine cable system linking Southeast Asia directly to the US. Bharti also joined several Asian, African and European telecom majors for building the fifth Southeast Asia-Middle East-West Europe (SEA-ME-WE-5) undersea submarine cable. The cable will connect Southeast Asia to Europe via the Indian subcontinent and the Middle East.

In September 2007, Bharti Airtel bought Singapore Telecommunications' (SingTel) entire 50 per cent stake in Network i2i, a submarine cable operator linking India and Singapore, for $66.7 million. Of the total amount, $55 million was paid in cash and the remaining through the acquisition of the $11.7 million debt due from SingTel to Network i2i.

RCOM is actively trying to increase its footprint in the US market. In July 2007, it acquired Yipes Holdings for $300 million. Yipes, which has over 40 per cent share of the US data communications market, has enabled RCOM to penetrate the enterprise and institutional data market in the country.

RCOM is also close to acquiring a European Wi-Max operator through a $300-$400 million deal. The latter is believed to have licences to provide WiMax services in over 20 countries across Eastern Europe, Africa and Latin America.The acquisition will enable RCOM to set up fresh Wi-Max networks and scale up the existing networks in these countries.

Even small Indian players are gearing up to enter the US and European markets. Chennai-based communication services provider Dhanus Technologies is set to acquire two US-based communications companies. It also has a Chinese telecom service provider on its radar. To fund these acquisitions, Dhanus plans to raise up to Rs 8 billion. The company also emerged as the lead bidder for Turkeybased Boursan Holding's telecom arm, Boursan Telekom Corporation. According to sources, if its over-Rs 3 billion bid is successful, it will lead to a leveraged buyout of Boursan Telekom, with ICICI being the lead lender to Dhanus.

Another Indian company, Acme Tele Power acquired Norway-based telecom infrastructure provider Reime Network Implementation in November 2007.According to reports, Acme is planning acquisitions and joint ventures in China and South America.

Asia-Pacific
State-owned MTNL has emerged as the highest bidder for Sri Lankan telecom operator Suntel. It already has a licence to offer telecom services in Nepal through a joint venture with Tata Communications and a Nepalese company. In Mauritius, MTNL has a subsidiary that provides CDMA-based services.

Another key acquisition by an Indian company in Asia was in November 2007, when network service provider GTL acquired Malaysia-based network planning and optimisation firm ADA Cellworks. The acquisition was made through an all-cash deal of $25 million.The move has strengthened GTL's presence in the high-value segments of network planning and optimisation.

Future focus areas

Sub-Saharan Africa and the Middle East are the two emerging markets that will see the maximum number of acquisitions in the near future. Though the telecom market in the Middle East is relatively small, after the recent wave of deregulation, it has become a popular destination for telecom companies across the world. Even though Indian telcos have no major deals in the region as of now, the immense scope of the market is likely to make it the next big focus area. Conclusion Acquiring an international footprint offers different advantages for different companies. For example, foreign markets offer MTNL an opportunity to go beyond just Delhi and Mumbai. For Tata Communications, entering global markets is part of a well-thought-out strategy to reduce the dependence on the long distance telephony market. The company's market share in the segment has dwindled over the past few years due to competition. For Bharti and Reliance, it is a matter of attaining sufficient scale to make their brands global.

Till now, most of the foreign acquisitions have been successful. That of Flag Telecom is a good example. When RCOM acquired Flag in 2003 for $207 million, the opinion was divided. While some analysts thought it would be Reliance's ticket to the global markets, others expressed concern that it was an overpriced buy in a sector plagued by excess capacity. At that time, Flag was making huge losses –­ in the six months ended June 2003, the company lost nearly $41 million. However, the move turned out well for RCOM. Flag broke even in 2006, and is now a major contributor to RCOM's total revenue and profit.With success stories such as this, the trend of Indian telecom companies making foreign acquisitions looks set to continue.