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Rumor: Etisalat Seeks Aircel M&A Deal

In an effort to determine a new strategic route for its Indian operations, Etisalat , one of the Middle East's most powerful carriers, is in talks with established mobile operator Aircel Ltd. regarding a prospective merger-and-acquisition deal, according to industry sources. Etisalat is already a player in India's mobile market. It owns a 44.73 percent stake in startup carrier Etisalat DB (formerly Swan Telecom), which offers its services as Cheers Mobile. Etisalat acquired the stake in September 2008 for about US$900 million. (See Etisalat Buys Into India.)

But Cheers Mobile is struggling to sign up customers: Following its first few months of commercial operations, it had just 30,000 customers at the end of July, despite offering its services in 15 of India's 22 service circles, giving it a market share of just 0.005 percent, the lowest of any of India's 15 mobile operators. (See A Guide to India's Telecom Market for more on India's circles.)

Etisalat has been trying to increase its stake in the startup to take majority control, but has been unable to secure approval from the Indian government for such a transaction. (See Etisalat's Indian Hurdles, Etisalat Seeks Control of Indian Ops, and Etisalat Reports H1.)

Following such a slow start for Cheers Mobile, and having been thwarted in its effort to take control of the startup, Etisalat has been exploring potential merger or acquisition deals that might provide it with the scale it needs to be viable in the Indian market. According to reports, Etisalat has already made unsuccessful attempts to purchase stakes in established Indian operators Reliance Communications Ltd. and Idea Cellular Ltd. (See India: M&A Hotbed and Reliance Lines Up Stake Sale.)

Now, according to industry sources, it's exploring M&A options with Aircel, which has more than 43 million customers, making it the seventh largest mobile player in India with a market share of around 6.5 percent. (See OSS Virtual Event: Aircel's IT HIT.)

Aircel, which has recently spent about US$1.4 billion in procuring 3G spectrum in 13 circles, and a further $762 million buying BWA (broadband wireless access) licenses in eight circles, may be looking to sell a stake to help raise some cash for its 3G and BWA network rollouts. (See India's BWA Auction Ends in $8.2B Drama and India's 3G Auction Ends, Raises $14.6B.)

Etisalat will have to work around local restrictions as it seeks to embed itself in the Indian telecom sector. Under current legislation, a company is not allowed to own a stake of 10 percent or more in a rival player. So unless it cuts its stake drastically in Cheers Mobile, Etisalat would be restricted to buying a stake of less than 10 percent in Aircel.

Ongoing expansion
Although Etisalat is exploring various M&A options, it is still investing in the expansion of Etisalat DB.

"While we continue to look for partners for mergers and acquisitions, we have decided to [continue to] expand our operations in the country," V. Sankaranarayanan, VP of Networks at Etisalat DB, tells Light Reading Asia. "This is because merger and acquisitions will take a little longer, but in the meantime we would like to be part of the Indian telecom growth story."

However, he refused to comment on whether the company was in talks with Aircel.

Etisalat DB is planning to expand operations by the end of 2010 in seven circles: Mumbai; New Delhi; Maharashtra; Uttar Pradesh East; Uttar Pradesh West; Madhya Pradesh; and Kerala. Other than its plans to boost coverage in the key metro markets of Mumbai and New Delhi, the choice of the circles Etisalat DB intends to expand in show the company is planning to focus on attracting rural subscribers from key B and C circles.

— Gagandeep Kaur, India Editor, Light Reading

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