Sistema, DLF join the telecom race

Russian conglomerate Sistema has finalised an agreement with Indian telecom services provider Shyam Telelink, the unlisted telecom services arm of the Shyam Telecom group, to acquire 74% in the company. The deal values Telelink at a conservative $114 million.

Simultaneously, Shyam has applied to the Department of Telecom (DoT) for unified access service licences (UASL) to operate networks in 21 Indian states.

Shyam’s application comes even as real estate major DLF Ltd today confirmed that it will apply for telecom licences by Friday, the fourth real estate company to have applied for the same purpose. IndiaBulls Real Estate Ltd, Unitech Ltd and Parsvnath Developers are the others. This takes the total number of applicants for telecom licences to 13, including the Reliance Anil Dhirubhai Ambani- backed Swan and Cheetah Telecom, HFCL, Ruia-backed BPL Ltd among others.

The scramble for applicants comes soon after Communications Minister A Raja announced that DoT would not accept any new UASL applications after October 1. Under the terms of the deal, Sistema JS Financial Company, a company listed on the London Stock Exchange, has agreed to acquire 51% in Telelink, which operates a small but well-performing CDMA technology-based wireless network with over 250,000 users in Rajasthan.

Sistema will seek the approval of the Foreign Investment Promotion Board and has rights to enhance its stake to 74%, the maximum that a foreign company can have in an Indian telecomservice provider.

The marks the second time the Russian company is trying to get a foothold in the booming Indian telecom services market. In 2005, Sistema had signed a non-binding agreement to acquire 49% in Aircel (a mobile operator in Tamil Nadu then promoted by NRI businessman C Sivasankaran) for $450 million. The deal fell through even while Sistema was pushing a plan to use part of India’s rupee debt to Russia for financing such bilateral projects.

For Shyam, this marks the second major divestment in its services business – it sold its GSM operation in Rajasthan to Bharti Airtel Ltd in a cash-and-stock deal some years ago.

Industry experts said the key reason for Sistema buying out Telelink rather than applying on its own for a licence is that the latter is already an operator and, therefore, ahead of new applicants in the race for allocation of spectrum.

Sistema is the largest private sector consumer services company in Russia and the CIS. The joint market capitalisation of companies under Sistema Telecom is over $20 billion.

Experts in the telecom business say that realty companies like Unitech and DLF with their large market capitalisation can raise the resources needed for the telecom business. With start-ups requiring over $5 billion to begin operations, most of them see a large upside in the business which is expected to grow to 500 million subscribers by 2011.

"We do not have a telecom partner right now, but we are going ahead and applying for licences. A special purpose vehicle will be set up for the venture," a DLF executive said.

The government is currently reviewing the policy on spectrum allocation and grappling with plans for introducing next-generation high-speed mobile services in India. Since telecom licensing norms were changed in 2003 to allow universal access (before this, licences were dependent on the technology being used), the government granted over 97 such licences.