Private equity (PE) investments in the telecom sector dropped 70 per cent during April-October 2009 to $207 million (around Rs 1,035 crore) from $697 (around Rs 3,485 crore) in the comparable period last year. The number of deals dropped to 12 from six.
Industry experts said that this was temporary and mobile value-added service, mobile broadband and telecom software companies as well as companies providing services to telecom companies would be among the favourites of PE & venture capital (VC) investors.
Venture Intelligence, a division of Chennai-based TSJ Media, a research firm tracking PE, VC and mergers & acquisitions (M&As) deals, said some big-ticket investments between April and October 2009 included a $180-million investment by IDFC PE, Oman Investment Fund and others in Quippo Telecom Infrastructure in June 2009, followed by Matrix Partners India’s $4.3 million investment in Ver Se Innovation in October 2009 and $3 million in Apalya Technologies by IDG Ventures India, Qualcomm Ventures during the same month.
A survey by Venture Intelligence reveals that almost 70 per cent PE and VC investors feel that Indian telecom operators would be able to profitably serve the next 100 million mobile consumers in rural areas. A majority of investors are also willing to bet that introduction of 3G services can be a game-changer for various players, the survey of fund managers from over 50 PE, VC firms reveals.
“While the appetite for investments in mobile operators is still high, PE and VC investors, who have invested over $5 billion in telecom services and related companies over the past five years, are also actively scanning for ‘downstream’ opportunities,” according to the survey.
Investors are also bullish on expansion by Indian telecom operators in other developing markets. Their experience in the highly competitive Indian market, combined with their low costs and ability to continuously innovate, will stand Indian operators in good stead while expanding into markets such as Africa, investors say.
More From This Section
In recent months, intense and rising competition, declining average revenue per user, high costs of 3G licences and the impending introduction of number portability have placed significant challenges before the industry, said Arun Natarajan, CEO of Venture Intelligence. At the same time, investors felt that introduction of 3G and emphasis by mobile operators on locally-relevant applications to enhance their ARPUs would present investors with several interesting opportunities, he added.
An expert from KPMG pointed out various opportunities and challenges for PE investors across various segments within the sector. While the industry will continue to provide attractive returns that PE investors seek, the landscape is likely to remain dynamic and somewhat uncertain over the foreseeable future from market, regulatory and industry perspective, according to him.
According to Deloitte, 3G has great potential to alter the dynamics of the Indian telecom market. Besides the expected adoption in metros, poor infrastructure on the fixed-line side means an increasing number of consumers is going to rely on mobile phones for data-driven services, leading to a massive uptake as and when the infrastructure becomes available.