Global Insight Perspective | |
Significance | Spice aims to increase its coverage from a current two telecoms circles to all 23 Indian circles, with an investment of up to US$2.5 billion. It plans to raise the funds through a two-stage share offering and long-term debt. |
Implications | Spice, currently on market share of about 2.5%, is eager to catch up with its larger rivals and further tap into the growth potential of India's telecoms market. |
Outlook | Spice’s expansion would further increase the adoption of telecoms services in India, as well as increase competition. However, the country's eighth-largest operator could face intense challenges from its larger rivals, which have established much more extensive mobile networks and subscriber bases. |
Spice has said that it plans to raise funds for its expansion through an initial public offering (IPO) of between US$250 million and US$300 million by the year-end, followed by a second offering of nearly US$350 million by end-2008, and by taking on long-term debt. The fund-raising will result in an equity dilution of between 10% and 20%. The investments are part of Spice's "aggressive growth strategy to give us a national footprint", said Dilip Modi, vice chairman and president of Spice holding company MCorp Global.
Currently offering GSM services in the northern state of Punjab and southern state of Karnataka, Spice aims to expand its presence to all 23 telecoms circles. According to Modi, the operator plans to invest US$2 billion in the new circles and US$500 million in the existing two circles. The country's eighth-largest mobile operator has applied for mobile licences for the remaining 21 circles, and for government permission to launch domestic long-distance (DLD) and international long-distance (ILD) services.
Outlook and Implications
Competition and Challenges Ahead: Spice's ambitious expansion plans indicate the willingness of the company and its shareholders to further tap into the growth opportunities in India's fast-growing mobile market. Currently holding about 2.5% of India's 110 million mobile subscribers, the operator will need significant network and customer expansion tocatch up with its larger rivals, including Bharti, BSNL, Reliance, and Hutchison Essar (Hutch Essar). However, Spice's expansion plan could face strong challenges from its competitors, as the telecoms market is currently crowded; several companies operate in each circle. How Spice would acquire new subscribers in the new circles, where existing service providers have already established their networks and subscriber bases, remains to be seen.
Much Room for Growth: With more than 5 million mobile subscribers added each month, India has emerged as one of the fastest-growing mobile markets in the world. Although the country's mobile subscriber base has now exceeded 110 million, penetration of around 10% indicates that significant room remains for further growth. The current growth trend is expected to continue for the next two or three years at least, driven by rising incomes, increasing network expansion by operators, low-cost handsets, and low-tariff plans. In addition, service provision to the country's large, currently under-served, rural population will be crucial for the further growth of India's telecoms market (see India: 17 March 2006: Mobile Metrics - Growth, Acquisitions and Regional Disparities in the Indian Mobile Market).
Opportunities for Investors: Spice's planned IPO would help TM Group increase the value of its US$178.8-million purchase of its Spice stake in March. Like other Malaysian operators, TM looks to expand its operations abroad in response to rising domestic penetration and competition levels. It has targeted India as a potential income source. The planned listing of Spice would also offer investors another opportunity to tap into the growth potential of the Indian market. The country's mobile market has attracted investment from several leading international players, including U.K.-based Vodafone Group and Malaysia's largest mobile operator, Maxis.