Private equity investment in the country's telecom sector is likely to surge next year with the introduction of 3G services and rural penetration by telcos, experts say.
Analysts believe as operators roll out 3G services by next year, the telecom infrastructure and mobile value added services will see more PE deals materialising in the sector.
"As new operators come on board, spending on downstream or ancillary operations like mobile value added services (VAS) and tower infrastructure would be increased," Venture Intelligence Chief Executive Arun Natarajan said.
So far this year, the Indian telecom industry witnessed PE investments worth over $300 million through 11 deals.
The PE firms are now actively scanning for "downstream" opportunities, including mobile VAS, telecom software.
"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," KPMG feels.
According to a Venture Intelligence survey of over 50 PE and VC firms, investors seem to feel expansion of mobile telecom services into semi-urban and rural areas will keep the industry in high-growth mode for the next several years.
Echoing similar view, Deloitte Corporate Finance Managing Director Sandeep Gill said: "3G has the potential to transform the way people use their phones –- but needs the right stars aligned to really gain traction, and fully realise this potential."
Over the last five years, PE and Venture Capital investors have put in over $5 billion in telecom services and related firms.
Natarajan added that regulatory hurdles over spectrum allocation and uncertainty regarding licensing agreement would lead to investors focusing more on ancillary services and less on the core business.
The survey found that PE investors chose Mobile VAS, Mobile Telecom services, Mobile Broadband and Telecom Software companies, as well as companies providing services to telcos as among their favourite sectors within the industry.
"A majority of investors are also willing to bet that the introduction of 3G services can be a game changer for various players in Indian telecom," it added.
Almost 70 per cent of investors surveyed felt that telecom operators would be able to find and profitably serve the next 100 million mobile consumers from rural areas.
"In recent months, intense and rising competition levels, declining ARPUs (average revenue per user), high costs of 3G licenses and the impending introduction of Number Portability, have placed significant challenges before the industry," Natarajan said.
