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India Telcos See Q1 Drop

Light Reading
News Analysis
Light Reading
7/30/2008

Indian regional mobile operator Spice Telecom has reported a net loss for the second quarter as it prepares to merge with Idea Cellular Ltd.

Spice posted a net loss of 1.36 billion Indian Rupees (US$31.94 million), compared with a net loss of INR365.06 million ($8.57 million) in the first quarter and a net profit of INR4.16 million in the second quarter last year. Revenues increased 27.5 percent from INR2.55 billion ($59.88 million) to INR3.25 billion ($76.32 million), while expenditure grew from INR1.83 billion ($42.97 million) to INR3.16 billion ($74.2 million).

During the quarter, Spice's chairman agreed to sell his 40.8 percent stake in the operator to IDEA, which has also made an open offer for Spice's publicly traded shares amounting to an additional 20 percent stake. (See India's IDEA Buys Spice for $750M.)

Despite Spice's recent losses, IDEA will end up cash richer from the deal by selling a stake in the merged company to TM International Bhd. (Telekom Malaysia Bhd. 's overseas unit) for INR72.94 billion ($1.71 billion).

Spice had 4.55 million mobile subscribers in Punjab and Karnataka at the end of June, two regions where IDEA is yet to launch operations. (See India's Going Mobile! 52M New Subs in H1.)

Global data services provider Tata Teleservices Ltd. also reported financials Wednesday, with a 24.15 percent drop in net profit from INR1.29 billion ($30.29 million) in the year ago quarter to INR983.4 million ($23.09 million). Revenues increased 3.71 percent from INR8.88 billion ($208.52 million) to INR9.21 billion ($216.27 million).

Tata, formerly VSNL, has been in an ongoing fight against falling profits as voice margins come under pressure. (See VSNL Rebrands as Tata Communications, VSNL Combats Falling Voice Margins, and VSNL Profit Plunges.)

Tata is increasingly focusing on offering value-added services such as security and telepresence to shore up its revenues. (See Tata, Premiere Global Team, Tata Chooses Sonus, Tata, Cisco Do Telepresence, and India's Hot for Ethernet.)

It's also investing in expansion in emerging markets, acquiring a stake in China Enterprise Communications and increasing its ownership in South African operator Neotel (Pty) Ltd. during the quarter. It increased its presence in the Middle East by hooking up with Etisalat in the United Arab Emirates. (See Tata Takes Bigger Stake in South Africa's Neotel and Etisalat, Tata Hook Up.)

In reporting its results, Indian real estate firm Unitech said it has appointed UBS AG to help it find a partner to take a 26 percent stake in its new telecom unit.

Unitech was among five companies that were granted licenses to enter the Indian mobile market in January, and it's preparing to launch operations in the first quarter of next year. (See India's Unitech Gears Up for Telecom, Indian Gov't Grants Mobile Licenses, and A Guide to India's Telecom Operators.)

The company has attracted interest from operators like AT&T Inc. (NYSE: T), Etisalat , and Qatar Telecom QSC (Qtel) -- which are looking to hook up with the new entrants as a way to get a foothold in the Indian mobile market. A partnership would give Unitech some cash to pump into the new network and the support of an experienced telco as it looks to establish itself in the market.

The company has also tapped McKinsey & Co. to help construct the new operator's business plan. According to a Press Trust of India report, Unitech has already floated a request for proposals (RFP) for network equipment and has received responses from ZTE Corp. (Shenzhen: 000063; Hong Kong: 0763), Huawei Technologies Co. Ltd. , Alcatel-Lucent (NYSE: ALU), Nokia Corp. (NYSE: NOK), and Ericsson AB (Nasdaq: ERIC).

Like most Indian carriers, Unitech expects to outsource IT services and is in talks with IBM Corp. (NYSE: IBM), HP Inc. (NYSE: HPQ), Wipro Ltd. (NYSE: WIT), and Tata Consultancy Services Ltd. , reports PTI.

— Nicole Willing, Reporter, Light Reading

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