The government's proposed new policy of allowing 100% foreign direct investment (FDI) in the telecom service sector is likely to come as a breather for telecom service providers, who are looking to exit after a long run in a cut-throat market.
Scarred by the 2G spectrum scandal and hit by high interest rates amid a price war, many companies have no magic cure — and a buyer to help them get rich after all those hard years may be just it.
The current policy allows 74% FDI in the telecom service sector. However, the proposed 100% FDI will make mergers and acquisitions - and valuations of local firms -- more attractive as foreign companies will get complete management control over the companies.
Industry sources say at least three pan-India telecom service providers have had discussions with potential buyers to sell all their stakes in the companies over the last six months.
With up to 10 players in some service areas, the crowded industry has seen profitability erode.
The problems of Bharti Airtel, India’s largest service provider, whose profits have fallen for 13 consecutive quarters, is a clear case in point. Industry estimates put the total debt burden of telecom operators at R250,000 crore.
While creaking telcos may find the exit lucrative, the game is still wide open for broadband services such as 4G telephony services — and this should make it worthwhile for would-be stake buyers. Broadband penetration in India is less than 4%.
A lot would depend on the new mergers and acquisitions policy expected in three months.
“The sector will become attractive for foreign investors if there is clarity on rules and regulations,” said BK Syngal, former chairman and managing director of Videsh Sanchar Nigam Ltd.