Indian Telecommunication Sector: An Attractive Investment Destination

• Potential to achieve 700 million telecom subscribers by 2012 from 374 million
currently
• Mobile subscribers at 350 million, second only to China
• High on M&As - NTT DoCoMo acquires 26% stake in Tata Teleservices for $2.7 billion;
Telenor buys 60% of Unitech Wireless for $1.07 billion
• Launch of New Platforms : Auction for 3G services soon

At a time when the economies globally are witnessing recessionary trends and mobile handset
manufacturing companies are cutting their projections of handset sales in 2009, the Indian
telecom industry continues to ring aloud with multi-billion dollar deals. Mega investment
plans for India are being drafted by overseas telecom service providers, as they seek to
participate in the world’s fastest growing mobile telecom market.

Deal Buzz Continues

The Indian telecommunication sector with total deal value of $5.8 billion garnered the
maximum share of 19% in the overall merger and acquisitions (M&A) in 2008. The sector
started the year 2009 on a high note with the country’s first mega deal announced. Quippo
Telecom Infrastructure Ltd., the telecommunication infrastructure arm of India’s largest the
infrastructure equipment rental company, Quippo Infrastructure Equipment Limited has
announced signing a deal with India’s sixth largest mobile telecom service operator Tata
Teleservices Ltd to buy 49% stake in its subsidiary Wireless-TT Info-Services Ltd. (WTTIL) for
about $500 million (Rs.24 billion). Quippo Telecom is a part of SREI Group having diversified
interests in areas such as infrastructure, capital market services and financial services. Under
the arrangement, Quippo and WTTIL will merge their operations comprising about 5,000 and
13,000 telecom towers respectively. Tata Teleservices will have the 51% majority stake in the
merged entity.

Earlier, NTT DoCoMo Inc., the largest mobile service operator of Japan, bought 26% stake in
Tata Teleservices Limited (TTSL), a part of India’s largest industrial conglomerate Tata
Group. The $2.7 billion deal is the largest in the Indian telecom market since early 2007,
when Vodafone Group Plc, the U.K. based world’s largest mobile telecommunications network
company had acquired 67% stake in Hutchison Essar Ltd (now Vodafone Essar) for $11.1
billion. TTSL stake provides NTT DoCoMo an instant presence across India along with a well-
established nationwide mobile network and a subscriber base of more than 30 million. The
NTT DoCoMo – TTSL deal, values the company at more than three times of what it
commanded three years ago. Temasek Holdings, the investment arm of the government of
Singapore, had picked up a 9.9% stake in TTSL at a valuation of about $3 billion in early 2006.

So much is the attraction of this market that even the new entrants, which are yet to role out
their network and win their first subscriber, are commanding billion dollar-plus valuations.
Telenor ASA, the biggest Nordic telephone company, has signed a deal with India’s second
largest real estate company Unitech Ltd to buy 60% of its wireless arm Unitech Wireless (UW)

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for $1.07b billion (including $400 million debt) on October 29, 2008. UW has the licenses for
all 23 telecom circles of India, enabling it to have a nation-wide footprint. UAE-based
Emirates Telecommunications Corporation (Etisalat) has acquired a 45% stake in Swan
Telecom for $900 million, valuing the company at $2 billion in September 2008. Swan, a part
of Mumbai-based real estate and hospitality business house Dynamix Balwas (DB) Group, has
secured licenses for 13 circles (two more licenses in process) out of the total 23 circles.

More To Follow:

Telecom has been an active sector in India in terms of M&A deals in the last six-seven years.
Yet, we can expect many more equity deals to take place sooner or later. The rush of
overseas telecom companies will continue, as they are facing saturated markets at home,
while the Indian market has a huge potential for further growth.

The prominent overseas telecom companies that are seeking an entry in to the lucrative
Indian market include a number of Middle-East and European service providers such as Qatar
Telecom, Kuwait-based Zain Group, Bahrain Telecom, Italy-based Telecom Italia SpA, a
leading Turkish telecom company Turkcell etc. South Africa’s MTN Group has also been
interested in acquiring, or being acquired by, or merge with an Indian company. Acquiring a
stake in an existing Indian company is the only certain way of entry in the Indian market, as
the only other option available right now is to participate in the auction for 3G services,
which are expected to happen very soon.

The Government of India has set a target of 45% tele-density compared with the current level
of 31.50%. The government has estimated that the telecom sector will need $73 billion during
the next five years to achieve the target of 45% tele-density, and a major chunk of the
required investment is expected to come through Foreign Direct Investment (FDI) inflow,
which has gone up to $1261 million in 2007-08 from $478 million in 2006-07.

What Makes Indian Telecom Sector Attractive?

Despite the gloomy outlook owing to the global recession/slowdown in the economy, the
telecom sector of India continues to attract record number of new subscribers. The Indian
mobile phone operators have been adding about 8-10 million subscribers every month through
out this year, and the figure has regularly topped the 10 million mark during the last three-
four months. Considering the current pace of fresh additions per month, India has the
potential of taking the total tally of subscribers to 700 million in the next five years from the
current level of about 350 million, second only to China. About 10.35 million wireless
subscribers were added during the month of November 2008, taking the total number to
336.08 million and a similar number was expected during the month of December 2008. The
total number of both wireless and wireline subscribers reached at 374.13 million at the end of
November 2008, according to the Indian telecom industry regulator, Telecom Regulatory
Authority of India (TRAI).

In terms of projected revenues, such a huge subscriber base is expected to generate more
than $37 billion by 2012 growing at a CAGR (compounded annual growth rate) of 18%. This

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growth potential offers enough incentive to overseas telecom companies to vie for their share
of the pie. Investor-friendly regulations by the government, allowing up to 74% holding in a
domestic entity by a foreign company, is an icing on the cake.

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