So what's the big fuss about Indian Telecom Space?: Hutchison Essar Bid

"The battle over Hutchison Essar has emerged as the largest corporate takeover battle in Indian history. What is today the fourth-largest mobile provider in India will, overnight, become one of the largest firms in Asia should it fetch the expected valuation of $16 billion to $20 billion." (Source: International Herald Tribune)

In a country dominated by the missed call syndrome (India probably holds a record for the maximum number of missed calls in the world), what is it that is driving the Vodafone's, Ambani's, Hinduja's, Essar's of the world backed by big private equity firms like Blackstone, Texas Pacific, Citibank, Morgan Stanley etc. (rumors for bidders also include Verizon Wireless in the United States and NTT DoCoMo of Japan) for taking over not the first, not the second but the fourth largest mobile telecom operator in India at a valuation of anywhere between $16-$29 billion?

While the ARPU for the Indian consumer stands at around a meager $9/month as against close to $45-50/month for the operators in the US or Western Europe. The average price per call on the Hutchison network is close to 2 cents a minute as compared to over 40 cents on NTT DoCoMo in Japan. Even Sunil Mittal of Airtel the Indian telecom giant in a interview with business standard quotes "`Hutch-Essar buyout is too expensive`". With such facts at hand it doesn't seem a profitable business to be in at the first glance.

So why is at that everyone in the world seem to be hoarding to take over the Indian telecom space?


A: While India lacks in the ARPU, it makes up for it with volume and the highest growth rate in the world.

International Herald Tribune has an interesting comparison between Vodafone and Hutch:

At first glance, Vodafone seems the more enviable enterprise. Vodafone reported 16.3 million subscribers against Hutch's 15.4 million in the first quarter of 2006, and it generated £1.2 billion, or $2.3 billion, in revenue to Hutch's $436 million, according to Wireless Intelligence.

It took Hutch four customers to make as much money as Vodafone earned on one.

But for Vodafone, and for mobile providers throughout the West, the future looks ever bleaker. Over the one- year period through March, 2006, Vodafone U.K. signed up 1 million new customers, as Hutch added 7.6 million. And even with its pared-down prices, the Indian company has been running a pre-tax operating profit margin of 34 percent, just higher than Vodafone's 32 percent.

B: Mobile probably is the only potential medium to bring broadband (and hence long term money) to a potential population of over 1.1 billion

Broadband over mobile (3G) will play a significant role in Indian scenario. Since it is impossible to deliver broadband through copper or fibre everywhere in India especially the rural segment, 3G will help deliver these services. Even the most rural parts of India will have people seeking basic information services such as farmers looking for the market prices of grains or fisherman for the weather data; mobile will become the default channel for the same.


C: Potential billion+ customers

Mobile probably is the only medium with the potential to reach over a billion people and hence brings in the most lucrative proposition for advertisers. Targeting the right segment of people on the basis of location, household income, spending power could never have been easier.


Not only these mobiles in a Indian scenario opens the door to a number of visible possibilities such as mCommerce, Microbanking, etc. (and several which we cannot foresee at this stage), each of which would be a topic for independent discussion which I will try to write out later.