Trade connections

A growing number of Middle East telecom operators are eyeing opportunities in the world's second most heavily populated country.

The past few months have seen a steady rise in activity between telecom operators in India and their counterparts in the Middle East and Africa, who are increasingly eyeing each other's territory for expansion.

Most recently, Qatari operator Qtel said it was looking at GSM opportunities in India, either by acquiring an existing operator in India, or a company with a new licence.

 

UAE incumbent Etisalat recently signalled that it was interested in buying a stake in Indian mobile operator Spice Telecom.

Etisalat's chairman, Mohammed Omran, said the company could spend up to US$4 billion on an acquisition or a licence to enter India, the world's second largest mobile phone market.

He added that the market value for shares in India have fallen recently, setting the ideal conditions for Etisalat's entry into India.

Etisalat already has a presence in India after it set up a software company in the country in March to deliver IT services and mobile applications.

Etisalat said the subsidiary, Etisalat Software Solutions, will be based in Bangalore and operate under the Technologia brand name.

Bahraini incumbent Batelco also indicated recently that it was planning to shift its focus away from over-priced assets in the Middle East to other emerging markets including India, Asia-Pacific and Africa, as part of a $4 billion acquisition drive.

"In the Middle East, the price for acquisitions is very high and the value is not what we're looking for," Batelco chief executive Peter Kaliaropoulos told reporters in the Bahraini capital, Manama, in May.

Meanwhile, Indian telecom operators are also looking to the Middle East and Africa to expand their services. Heavyweight Bharti Airtel was recently in talks to buy a 51% stake in MTN, South Africa's biggest telecom operator, although the companies failed to come to an agreement.

And certainly, Middle East operators in particular appear to have much to gain in India, which recently overtook the USA to become the world's second biggest wireless network market after China.

According to analysts at Frost & Sullivan, the total wireless subscriber base of GSM,CDMA & WLL(F) users in India stood at 261.09 million at the end of March 2008.

Furthermore, a total of 10.16 million wireless subscribers were added in March 2008 compared with 8.53 million wireless subscribers added in February 2008.

The total number of telephone connections reached 300.51 million at the end of March 2008, while overall teledensity was just 26.22% at the end of March 2008, according to Frost & Sullivan.

Assessing the landscape

Girish Trivedi, deputy director of Frost & Sullivan's telecom practice for South Asia & Middle East, says that the overall telecom market in India is driven primarily by the wireless sector, and that growth is particularly rapid outside the major cities, where penetration rates are growing from a low base.

"In India the level of reach for fixed services is very low," he says. "Mostly the major cities and some towns have full connectivity. Growth demand for communication is coming from the mobile sector in urban areas."

"We had 261 million private subscribers as of the end of March. There are more than six operators per circle as of now."

Trivedi says the Indian telecoms sector has been divided into circles - known as Metros, A, B and C - based on GDP of the areas and the revenue that can be generated for telecom service providers there. Metros and 'A' circles tend to be economically stronger, often large cities and towns, while 'B' and 'C' circles are economically less developed.

The difference between the mobile penetration rates in these areas is huge, according to Trivedi.

"If you look across these circles you have various levels of penetration. Metropolitan areas are highly penetrated - we have circles like Mumbai, Chennai and Calcutta, which are reaching 100% in terms of penetration levels. But B and C circles are far behind that, with just about double to single-digit penetration."

However, the low level of penetration in B and C circles means that these areas have enormous potential for mobile operators, despite having lower purchasing power parity than the more developed metropolitan areas, according to Trivedi.

"'A' circles are highly penetrated compared to B and C so the growth momentum is now shifting towards B and C circles, where first of all the penetration is low and demand is growing," Trivedi says.