MERGER & ACQUSITION IN TELECOM SECTOR OF INDIA

Ashish AgnihotriBhaven Chheda

Dipesh JainHarsh ChauhanTejashree BoleZececa Mehta

Sector Overview

Indian Telecom Industry• Total telecom subscribers – 325.79 million (June 2009)

• Tele density – 28.33 per cent (June 2008)

• Quarterly addition of mobile subscribers (April–June 2008) 25.80 million

• Telecom subscribers annual growth rate (2007–08) 44.79%

• One of the biggest telecom markets in the world

• Average Revenue Per User (ARPU) for GSM (June2008) – US$ 5.6

Indian Telecom Industry• More GSM subscribers than fixed line subscribers

• Telecom equipment market (2007–08) US$ 23,699 million

• Handset market (2007–08) – US$ 5,962 million

• Expected mobile subscriber base (2010) – About 500 million (i.e., more than one phone for every household)

• It witnessed a CAGR of approximately 29% from 2002–03 to 2007–08.

• The CAGR is expected to stabilise at 16% between 2007–08 and 2009–10.

India – An Ideal Investment Destination

• The large untapped potential in India’s rural markets revealed by 9.21 per cent tele density in rural markets as compared to the national level of 28%.

• The government promoting telecom manufacturing by providing tax sops and establishing telecom-specific Special Economic Zones.

Major Players

Vodafone-Hutch Deal

• In Feburary 2007, Vodafone has bagged the 67% Hutch Telecom International (HTIL) stake in Hutch-Essar at an enterprise value of $19.3 billion

• Income Tax (I-T) department notice to pay capital gains of $2 billion

TATA’s Global Foray

• The TATA Group acquired Videsh Sanchar Nigam Limited ("VSNL"), in 2002

• In 2004, they acquired Tyco Global Network (TGN) for $130 million

• This gave the company control over a 60,000 km cable network spread over three continents with a huge bandwidth of 10-15 terabytes and substantial control over bandwidth prices.

• TATA Communications acquired Teleglobe International Holdings in 2005

• global network access, agreements with leading global voice carriers and an enhanced utilization of TGN network allowing global scale for voice

Recent Mergers & AcquisitionsIdea Cellular takeovers Spice Telecom

• Idea buys 40.8% stake @ Rs.2720 crores.

• Idea gains entry in the contiguous wireless markets of Punjab and Karnataka, which account for 11% of India’s total wireless subscribers.

• Idea gains all-India subscriber market share increasing from 9.5% to 11.1%.

• Idea’s operations in the 900 MHz GSM spectrum band will increase from the current 7 service areas to 9 service areas.

Recent Mergers & AcquisitionsNTT DoCoMo takes stake in Tata Teleservices

• NTT DoCoMo paid 2.7 Billion USD for a 26% stake in Tata Teleservices. The deal values Tata Teleservices at $10 bn.

Swan Telecom - Etisalat • Emirates based Etiasalat paid $900 mn for 45% stake in Swan Telecom.

Unitech Wireless - Norway’s Telenor • Norway-based telecom operator Telenor has bought a 60 per cent stake in

Unitech Wireless for US$ 1.23 billion.

STel – Bahrain Telcom • Bahrain Telecommunications Co (Batelco), has signed an agreement to acquire

49% stake in Chennai based S Tel for $225 Million.

ALLURE OF M&A IN TELECOM• Acquisition of licences or geographical territory

• Acquisition of spectrum

• Acquisition of telecom infrastructure and network

• Acquisition of customer base to achieve an economic base

• Acquisition of brand value

• Higher operating profit (EBITDA) margin

M&A of Tower CompaniesCompany Approximate number of towers (in May 2009)

Indus 80000

Reliance Infratel 31000

Bharti Infratel 20000

Quippo Telecom Infrastructure (QTIL) 23000

GTL 9000

Essar Telecom 6000

American Tower Corp 4000

Tower Vision 3000

Aster Infrastructure 1000

India Telecom Infra Limited 1000

KEC International 400

Independent Mobile Infrastructure 400

INDUS TOWERS DECEMBER 2007

• Bharti Airtel, Vodafone Essar and Idea Cellular merged their wireless infrastructure businesses to form Indus Towers.

• They collaborated in 16 circles with 70,000 towers.

• Indus tower became the world’s largest ‘independent’ tower company.

• Vodafone (Ortus Infratel Holding) each have a 42% equity in this infrastructure firm, while Idea Cellular holds the remaining 16%.

• Bharti and Vodafone contributed 29,400 towers each to Indus with Idea bringing in 11,200 towers.

• This merger happened to enable all three service providers to increase efficiencies and reduce expansion costs.

• Indus Towers provides passive infrastructure services to all operators on a nondiscriminatory basis.

• Indus Towers helps in optimization of future tower roll-out and enhanced operational efficiency leading to opex and capex savings for its customers.

WTTI MERGED QTIL DECEMBER 2008

• Wireless Tata Telecom Infrastructure (WTTI) merged with Srei group company Quippo Telecom Infrastructure (QTIL).

• QTIL made an upfront cash payment of Rs 24,000 millions and transferred its 5,000 towers to WTTI in exchange of a 49% stake and management control in the merged entity.

• The new entity formed has over 18,000 towers with an enterprise valuation of about Rs 13,000 crore ($2.6 billion).

AMERICAN TOWER AND XCEL TELECOM

MARCH 2009• Nasdaq-listed American Tower Corporation (ATC) acquired the

Mumbai-based independent tower company, Xcel Telecom, founded by former BPL Mobile chief executive officer, Sandip Basu.

• ATC had entered into an agreement with Q Investments, Mauritius, which had a major stake in the company.

• Xcel Telecom was valued at Rs.850 crores, which owned 1,700 towers in country.

• Per tower valuation comes to Rs. 5 millions.

Conclusion and M&A Outlook• Consolidation and inorganic subscriber growth

• Expand global footprint

• Reduce costs

• Funding for growth

• Technical expertise

• 3G & WiMax

THANK YOU