Good Idea, tough call

Few foreign telecom companies have forayed into India in recent times. Many have had a look-see (NTT DoCoMo executives, for example, are said to have met several Indian telecom companies some months ago), but hardly any have put money in the Indian market of late.

Two exceptions to this rule could be Singapore Technologies Telemedia (ST Telemedia), the Singapore-based information and communications company which is a wholly owned subsidiary of Singapore Technologies and Telekom Malaysia International, the overseas investment arm of Malaysia's communications company Telekom Malaysia Berhad.

Both companies have together bid for AT&T's 33.33 per cent stake in Idea Cellular, the three-way venture among the Birlas, the Tatas and AT&T.

The Birlas and the Tatas have made no secret of their desire to exit Idea Cellular. The A.V. Birla group wants out. The Tata group has finally decided that its route to growth in the industry will be the code division multiple access (CDMA) technology route "� and Tata Teleservices is a CDMA company. Cingular Telecom, which recently took over AT&T Wireless Services, does not want a presence in India.

ST Telemedia and Telekom Malaysia are conducting a due diligence exercise and have made it plain that they have not yet taken a final decision on investing in Idea (contrary to Indian financial press reports). The price too is being negotiated, though it could be about US $200 million.

Last week, Richard Lim Beng Hoe, vice president, corporate services group, ST Telemedia, explained to Ice World in Mumbai how the Singapore company decided to invest in Idea.

"We bumped into this opportunity through our bankers. At the same time Cingular took over AT&T and decided to exit India and was looking for a buyer."

On its part, the Malaysian company seems to have viewed an investment i n India as a good opportunity. Rema Devi Nair, general manager, corporate affairs, TM International Sdn Bhd, cites the reforms in India and the growth of mobile phone services here as reasons for investing in the country.

Says she: "We have been in Bangladesh, Sri Lanka and in markets where there has been political unrest and made a successful business out of it. India is comparatively squeaky clean."

The partnership between the Singapore company and the Malaysian one is recent. Says Hoe: "I think this is a very sensitive partnership for this is the first time that we are partnering Telekom Malaysia. We are still working out the territory assignments and till we manage that we will wait."

Why is ST Telemedia seeking a presence in the Indian market now? It earlier had a small investment in Modi Corp's telecom venture Spice Communications in Kolkatta but exited the business at the end of 2002.

Also, it's a part of Singapore's powerful Temasek Holdings group, as is Singapore Telecom, which has a stake in the Bharti group. Why are two companies in the same group investing in the same industry in the country? ST Telemedia executives reply that Singtel and STT are two entirely different companies.

On investing in India, Hoe explains: "India has always been on our radar. We started 10 years back (in Singapore) . We were then very focused on Singapore." With Singapore's telecom market reaching saturation point, ST Telemedia is obviously looking at growing markets like India, China and Indonesia.

Yet ST Telemedia and Telekom Malaysia are confronted with challenges.

At the end of June, Idea had 4.04 million customers (after its takeover of Escotel). It has licences for 11 circles and is operational in eight. With a market share of 13.85 per cent, it is India's fourth largest GSM cellular operator. Even so, it's a pygmy and has no pan-India presence. So it will have to acquire other companies "� and there are few going at the moment.

Secondly, when the duo decided on Idea, India allowed only 49 per cent foreign equity in the telecom industry. That may change if finance minister P Chidambaram's proposal to raise the foreign direct investment ceiling in telecom to 74 per cent sails through Parliament.

If that happens, the combine may have to buy not just AT&T's stake but portions of the Birlas and Tatas' equity too. So ST Telemedia and Telekom Malaysia may wind up in control of Idea.

Thirdly, if the Tatas and the Birlas want to exit Idea quickly, the foreign combine will be faced with the prospect of quickly finding an Indian partner that will acquire 26 per cent of Idea's equity.

Idea and its bankers are evaluating their options, including an IPO for the remaining 26 per cent stake and inducting another strong Indian partner.

ST Telemedia and Telekom Malaysia haven't begun talking to the Tatas and Birlas as yet. They are focused right now on talking to Cingular.

Hoe points out: "It was an opportunity for us, it is still a new thing. Once things get sorted out, we will have to think about moving forward."

So the future for Idea looks clear. The foreign combine will first buy out Cingular and then sit with the Tatas and

Birlas to see whether it can increase its stake further. If Parliament clears Chidambaram's higher FDI proposal, the deal could be consumated quickly. Till then, ST Telemedia and Telekom Malaysia will, no doubt, be keeping a close watch on the events unfolding in New Delhi.