Telecom among the big fish

BACKSTAGE

Most households may not have known this, but long before cable television made its high-profile entry into India, Rajiv Mehrotra, Chairman of Shyam Telecom, was part of their lives. His company had a monopoly on the roof-top antennas that were mandatory to view the state-owned Doordarshan.

Last week, Mehrotra did make it to the headlines, though for a completely different reason. That was when the Sunil Mittal-owned Bharti Televenture snapped up a 27.5 per cent equity stake in group company Hexacom, which runs GSM (Global System for Mobile Communication) cellular service in Rajasthan, for Rs 102 crore. And if that was not enough, Bharti also offered to buy out Mehrotra's 40 per cent stake (through holding companies and Shyam Telecom).

Since negotiations are on, Mehrotra is not willing to talk to the press, merely offering the comment that, "We have an offer from Bharti and we are evaluating it."

Mehrotra's diversified telecom empire, which straddles both manufacturing and service, attracts curiosity because he is something of a rarity in the big money, high stakes business of Indian telecom.

The Rs 187-crore group holding company Shyam Telecom is one of the few Indian firms that has a reasonably-sized telecom equipment manufacturing business "" a market dominated by the international big boys like Alcatel, Lucent, Siemens and Nortel. It recently won contracts from state-owned Bharat Sanchar Nigam Limited (BSNL) worth over $ 40 million for manufacturing digital radios, multiplexers and fixed wireless terminals.

The group has also ventured into software in collaboration with US software company Cincom. Here, too, the concentration is on developing solutions for the telecom industry "" which includes its latest offering, a software which will help customers send bulk SMS to mobile phones anywhere in the world. It also runs a VSAT business "" through a 50-50 joint venture with Subash Chandra's Essel group.

But it is the telecom services business that brought Shyam into the limelight. Says a senior telecom executive who has worked closely with Shyam: "They are among the few companies in the country that operate both basic as well as GSM service in the same circle "" Rajasthan. And they have taken risks that very few companies would dare to take."

So, for instance, Shyam was one among five companies (the others included Bharti, Tatas and Hughes amongst others) that dared to bid for basic service licences in 1997 when the area was opened up for the first time to the private sector, taking on the established might of BSNL.

But this is the business that has also proved the toughest. Despite the Rs 150 crore that was spent in 2002-03 alone to expand its network, Shyam Telelink is at the bottom of the heap among private basic service operators in terms of consumers with just 1.12 lakh subscribers (even HFCL Infotel has more subscribers in Punjab at around 1.2 lakh).

Worse, it faces even tougher competition. Rival Reliance Infocom has already over 1.53 lakh subscribers in their home turf. And with basic services now being allowed full mobility, Shyam, with operation in just one circle, will find itself getting further squeezed by companies like Reliance and BSNL that have all-India networks to leverage their business. And the situation will only become tougher with Tata Teleservices planning to start basic service operations in Rajasthan soon.

Of course, in the cellular business, the story has been different. With over 2 lakh subscribers and more than 48 per cent of the market, Hexacom has been sitting pretty in Rajasthan. Analysts say that despite being in just one cellular circle it has been a profitable business.

Of course, a key reason has been the lack of competitors in Rajasthan in the GSM cellular space. The second operator, Aircel Digilink (part of the Essar group) has "" fortunately for Shyam "" remained a marginal player with a paltry subscriber base of 32,000. And big boys Bharti and Hutch have been conspicuous by their absence.

But that might change dramatically. Aircel Digilink is in the process of being consolidated into a new holding company in which Hutch and Essar are to be the main partners. And Essar executives say that the Hutch brand will roll out very soon in the Rajasthan market too.

Second, BSNL, which launched services this year, is already giving Shyam a run for its money "" with 1.82 lakh subscribers, it is closing the gap with the number one. And now, of course, Bharti is knocking on the doors to acquire all of Hexacom.