Sunday, August 16, 2009

The Importance of Expansion

Vasu Reddy from Chicago

The last couple of years have been quite speculative for the Indian Telecommunications companies going global. Special references can be made to South Africa’s MTN and Bharti and Reliance trying to merge and create a top 5 global telecom company. The current due diligence and negotiations between Bharti and MTN are their second round in 2 years and still continuing, while Reliance’s tryst with MTN last year ended partially because Reliance’s family matters made it a spectacle in the press, and might have derailed the proposed merger.

India and its regulators and the government should encourage and become conducive to expansion of Indian telecoms into the global networks. Helping with changes with favorable laws and financial processes will bring the expansion plans to reality quickly, and lead to continued growth in telephone density.

Global acquisitions will bring global market understanding into the already robust growth in India’s own internal growth. Every country adapts to its own needs and looks at becoming a market leader in its own space. When you combine two or more market leaders the osmosis of better practices will flow within the merged entities and help in further understanding the market dynamics, and providing benchmarks for learning from each other’s successes.

Management expertise is a definite benefit from any major global merger. It might create tensions in the board room and at the CEO level, but certainly could bring multiple country expertise to middle level management and operations. Cultural and traditional intolerances and biases disappear when teams are merged together and work together.

India already receives about 5 times incoming calls compared to outgoing calls from the country. A mega merger with any international telecom will create an opportunity for greater share of the international long distance revenues with both incoming and outgoing traffic. The operators can start to benefit from both ends of the origination and termination traffic, and also save on costs they might be potentially paying to hand-off calls to others. Another added benefit could be any preferential agreements both the merging partners might have in place can come in handy for the merged network.

India has one of the lowest average revenue per user, and it will continue to be so due to the economic structure of the country. Most nations have a much higher ARPU, and any merger will immediately inflate the overall networks ARPU. A combination of additional revenue opportunities with roaming within the merged network, international long distance, cost savings with the network management and maintenance, services, product purchases, new product introduction and a slew of day to day activities, will certainly enhance the value for shareholders. Economic expansion into off-shoot of telecommunications with call centers, bandwidth management, tower construction and management, accounting and engineering are all aspects of the business that will benefit from huge mergers.

Indian currency today is much easier to convert to other currencies and back compared to previous decades but still is not a freely convertible currency. When we have a vast network of phone companies together and operating in multiple countries, trade and other practices will allow for better currency moderation, and brining the Indian Rupee to a fully convertible status. By no means a single telecom merger with another may not transpire the currency into a convertible status, but certainly will help. It is not just the moment of traffic, combining the network but also combines multiple trade opportunities along with the merger of networks, which in itself helps to further Indian economy into global center stage.

India itself has allowed massive investments into its telecom space from global players and investors and has benefitted greatly with the influx of expertise. Telecom India is one of the three largest providers of employment, taxes and economic output. Time is now for our telecom biggies to acquire or merge with other majors in the world to manage global networks, and start to behave like global managers.

Its one world we live in and it can be integrated with large expansion and acquisitions models and serve greater good than just a profit motive of the shareholders of two or more companies. Cultural, racial and economic barriers can be overcome by properly implemented mega mergers. The global carriers such as Vodaphone and Hutchison have successfully managed global networks while creating great wealth for its shareholders. Aspiring that the Indian telecom companies will achieve such success along with human relationships is not asking too much, rather a simple next step.

August 15th 2009
Vasu Reddy
Optus Technologies, Inc.

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