Global Insight Perspective | |
Significance | Sistema has become the first Russian company to enter the Indian telecoms market. |
Implications | The purchase of the Shyam Telelink stake is in line with Sistema's strategy to enter high-growth developing markets and further integrate itself in the global markets. |
Outlook | Although the size of the deal is small, it demonstrates that foreign players continue to be interested in entering India's booming telecoms market. However, given the strong competition, it is increasingly difficult for investors to acquire quality assets. |
Sistema, the largest private-sector consumer services company in Russia and the CIS, today announced that it has acquired a 10% stake in Shyam Telelink, an Indian telecommunications operator, for US$11.4 million. Sistema said it intends to increase its stake in Shyam Telelink to 51% after receiving approval from the Foreign Investment Promotion Board (FIPB) of India. Upon receipt of this approval, the overall value of the deal may reach US$58.1 million. The Russian company may further increase its stake to 74% subsequently, as is allowed under the foreign direct investment (FDI) policy. Shyam Telelink is a fixed-line and CDMA mobile service provider operating in the Indian state of Rajasthan, with 257,100 subscribers as of the end of August.
Outlook and Implications
- Further Consolidation: Although the size of the deal is small, it demonstrates that foreign players continue to be interested in entering India's booming telecoms market. The total number of wireless subscribers (GSM, CDMA & WLL) in the country had reached 201.29 million by the end of August, after adding eight million wireless subscribers during the course of August. With rising interest from foreign buyers, it is increasingly difficult for investors to buy into quality assets. The major foreign players in the Indian telecoms market now include Vodafone, SingTel, Maxis and Telekom Malaysia. Although Shyam Telelink is only a small player in the market, it has applied to the Department of Telecommunications (DoT) for a unified access service licence (UASL) to operate networks across the country. However, Shyam Telelink will face strong competition from other applicants in acquiring new licences. The robust growth potential in the Indian mobile market has led to a spate of new applications for pan-Indian licences, including from both existing telecom operators and new applicants. The government has said it would not accept any more after 1 October, as there are already about 160 pending applications with the DoT. In addition, the Indian government is currently reviewing the telecom licensing policy. Therefore, Shyam Telelink's expansion plans depend on the results of licensing policy reviews and spectrum availability (see India: 25 September 2007: DoT Announces Deadline for Accepting New Indian Licence Applications).
- Sistema's Overseas Expansion: Sistema is the first Russian company to enter the Indian market. It is one of the leading telecoms holdings in the CIS, with assets including leading Russian mobile operator Mobile TeleSystems (MTS), alternative operator Comstar UTS, Moscow fixed-line incumbent MGTS, Russian national fixed-line long-distance operator Multiregional Transit Telecom (MTT) and CDMA mobile operator SkyLink. It has previously aimed at expansion further abroad, and to this end has in the past sought partnership with major Western European players, including Deutsche Telekom and Telecom Italia, as well as China's ZTE. However, its ambitions to consolidate beyond the CIS have often been deterred by high prices on the global market (see CIS: 20 September 2006: Sistema Shelves Short-Term Plans for Expansion Beyond CIS). The move into India will therefore have been carefully weighed up in terms of its growth potential and value for money. Sistema President and Chief Executive Officer (CEO) Alexander Goncharuk pointed out that the purchase of the Shyam Telelink stake was "in line with our strategy to enter rapidly developing markets and further integrate Sistema in the global business community". He added that India's high growth potential made it "one of the most attractive markets". Sistema's expansion policy is unlikely to end here, and Global Insight projects that further expansion into Asia is likely in the longer term.