My Blog: Vivek Madan - With tough Competition in Indian Mobile Sector , Is aquision similar to AT&T and T Mobile make sense in Indian context

Recently AT&T decided to merge T-Mobile with AT&T positioned at No 2 and T-Mobile at No 4 . Two big giants in USA decided to merge .

Indian market has been competitive and flooded with operators approx 9 . Is merger and acquisition on cards in Indian context. Questions to be answered:

• Will any of Top 4-5 will merge together
• Will any of Top 4 will merge with small operator

Lets see comparison of USA and India market in context :

USA Market

• Subscribers:USA has 4 operators with AT&T (92 mn) and T-Mobile (34 mn) being the largest GSM operators. The two other Tier 1 US wireless carriers Verizon (96 mn) and Sprint Nextel (48 mn) are CDMA operators. Then there are local players like Metro PCS (8 mn) and Leap Wireless (7mn).
  

• Revenue: Average ARPU = $50 , Data as % of revenue =30%-35%
• Products : Bundle smart phones.
• Technology : 3G, HSPA, WIMAX , EVDO , LTE.

For non technical readers Data services on GSM has evolved from GPRS/Edge to 3G(UMTS) to HSPA, HSPA+ and introduction of LTE networks.

Lets understand why AT&T aquired T-Mobile :

• Addresses wireless spectrum challenges facing AT&T, T-Mobile USA, their customers, and U.S. policymakers

-Provides the spectrum and network efficiencies necessary for AT&T to address impending spectrum exhaust in key markets driven by the exponential growth in mobile broadband traffic on its network.
-Because AT&T has led the U.S. in smart phones, tablets and e-readers – and as a result, mobile broadband – it requires additional spectrum before new spectrum will become available.

• Improves service quality for U.S. wireless customers

AT&T and T-Mobile USA customers will see service improvements - including improved voice quality - as a result of additional spectrum, increased cell tower density and broader network infrastructure.

• Coverage and Expands 4G LTE deployment to 95 percent of U.S. population – urban and rural areas

- AT&T will immediately gain cell sites equivalent to what would have taken on average five years to build without the transaction, and double that in some markets.
- Combined AT&T and T-Mobile will be able to deliver LTE service to 46 million more Americans than they could separately.

Key Message from above are :
- Mobile Data Growth is implied reason needing spectrum, coverage and faster LTE roll out
- Its not about aquiring subscribers through merger

Government Concern are:
- AT&T and T Mobile merger will create Duopoly with Verizon .
- Will this eroded competitive landscape and government wants more competition in data services
- Will this serve good for US economy and government aspiration to have 95% penetration of data services.

Lets see how this compares to Indian market which has seen full controversies with 2G spectrum.

INDIA Market

• Subscribers:India has 9 active operators with Airtel (142 mn) , Reliance (115mn), Vodafone (113 mn) , TATA(80 mn), Idea (72mn) , BSNL (70 mn) , Aircel (44mn ) followed by small operators who were given licenses under controversial scam.
  

• Revenue: Average ARPU = INR 200-250 , Data as % of revenue =15%, Teledensity= 67%
  
• Products : Bundle expensive smart phones but unbundled phones mostly
• Technology : 3G, HSPA, WIMAX , EVDO with LTE on horizon
  

Recent Market trends (last 2 years)

• Penetration of smart phones
  
• Focus on data services with roll out of 3G networks by all major operators with exception of new 2G license operators who opted out of 3G race
  
• 3G auction with exorbitant spectrum prices driven by lack of 2G spectrum as paid high price in circles where they are market leaders for voice.
  
• No Pan India 3G provider , meaning 3G roaming will be reality
  
• Broadband WirelessAccess (BWA) licenses in bits and pieces with Reliance as Pan India player, this allows use of LTE for data services. Looks LTE action will happen in near future.
  

Mergers case in India

• New license operators financial condition is not good will look for partner. Existing Indian operators interest in them is very bleak. Foreign operator may invest to expand into emerging market.
• Data growth is at initial stage , operators are still in roll out stage making merger distant dream . Once data reaches to 50% of revenue this may change as spectrum , coverage , service quality vs individual investment may push for merger.
  
• Operator will look by circle before collaborating merger , Pan India merger looks remote.

Summary
Acquisition trends are shifting more into synergy driven by
- Technology adopted and maturity like LTE, HSPA, WiFi etc . If operators see one is in advance stages of roll out , other can leverage same.
-Spectrum and network coverage synergy
- Data service will be key decision criteria
- Acquisition into different continents will continue.