Business Today

Land of plenty

Cash-rich property developers eye the telecom sector.

twitter-logoMahesh Nayak | Print Edition: October 21, 2007

The second wave of the telecom revolution in India is being led by a clutch of real estate developers. Indiabulls Real Estate Ltd (IBREL), Unitech, DLF and Parsvnath Developers have applied for universal telephone licences. In a country where less than one out of five persons uses a cell phone, it’s not surprising for new players foraying into the sector.

The big question, however, is: Why are property firms venturing into telecom? The answer is simple: They’re generating loads of cash. IBREL, for instance, has a market cap of Rs 15,726.41 crore and a net worth of Rs 6,300 crore (see The Rs 29,000-crore Surprise). “We have applied for telephone licences in 22 cities which will give us access to sell wireless, fixed line and internet access services in India,” said Gagan Banga, CEO, Indiabulls Credit Services. However, he is clear that his role will be that of a financial investor and not an operator. “We will play the role of Essar in Vodafone,” he adds. The company has planned an outlay of Rs 1,500-1,700 crore for the telecom business.

Venugopal Dhoot, Chairman & MD, Videocon: Telecom calling
Venugopal Dhoot
The market may be huge, but players like Bharti Airtel and Reliance Communications (R-COM) have a head start, and have already roped in millions of subscribers. What chance would these new players have of making a dent in a business that’s capital-intensive and with a long gestation period? Says Devyani Javeri, telecom analyst, Edelweiss Securities: “I don’t think some of these applicants are serious players. It’s more a valuation game for most of the guys who are applying for licences. In an industry where average revenues per user (ARPUs) are falling, it will be difficult for new players to capture market share.” In fact, for fiscal 2008, existing operators, including Bharti and R-COM, have already planned an investment outlay of over $12 billion (Rs 48, 000 crore) to expand their networks.

What may be in favour of the new players, however, is the low penetration of telecom services in India, the 200 million existing mobile subscribers notwithstanding. In the smaller towns and villages, close to 95 per cent of the population have no access to telecom connectivity. “By 2015 the mobile user base in India is expected to be more than three times the size of that in the US,” says Venugopal Dhoot, Chairman & Managing Director, Videocon Industries. Dhoot is planning to rope in a US telecom player and make an initial investment of Rs 300 crore for the new business. He’ll need a lot more if he plans to ride the long haul.

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