September 30, 2007


I want my own telecom company

More than 200 companies want to build a telecom company. The real estate companies like DLF, Unitech, IndiaBulls, Parsvanath want to "diworseify" to telcom. Many are in the queue just to beat the deadline, but that still leaves a substantial number of interested parties. The obvious question is why such a mad scramble? The question is more puzzling if you consider the situation before 4 years. In 2003, when Reliance launched its service, everybody thought Reliance is burning the cash when the market has already saturated. 4 years later, Reliance is 2nd largest telecom operator in the country and India is adding 6-8 million subscribers per month.

I suppose the business case for telecom companies can be written on the backside of BEST bus-ticket. Bharti, the market leader, has 46 million subscribers and Dalal Street values the company at US$ 45 billion. Reliance Communication, with 34 million subscribers, is valued at US$30 billion. Which essentially means, each subscriber is valued at approx US$ 900.

Now think of the potential. India's cellphone subscriber base is approx 200 million. In absolute terms, 75% percent of countries in the world have population less than that. But, that number is dwarfed by China's 500+ million subscribers. The "If China can do it, so can we" attitude, admirable at that, says that 300 million subscribers are yet to be added.

If you multiply the potential users (300 million) with valuation for each subscriber ($900), we are talking about a $270 billion company. Even you halve that number for a conservative estimate, that is still $135 billion company - 3-times bigger than Bharti Airtel. No wonder, everybody wants to have piece of this gigantic cake. Let's not forget, the richest man in the world owns telecom companies in Latin America.

Photo Courtsey: msputz2u on Flickr


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