Tuesday, June 21, 2011

Interview: Sistema Shyam Keen to Acquire or Merge in India

"Sistema is definitely eager to take a step" but it has to wait for the government to finalize new regulations, said Chief Executive Vsevolod Rozanov.
Sistema Shyam Teleservices
Chief executive of Systema Shyam Teleservices Vsevolod Rozanov.
He didn't sound very optimistic, saying that "I think we are very far from this," but this is the first time in recent months that a telecom operator has said it is interested in buying out or merging with another.
"Consolidation" is a key word these days, with intense competition hurting profits in the world's fastest-growing telecom market.
The competition grew due to the entry of new players in 2009, which led to call tariffs plunging to as low as half a cent a minute.
India now has up to 14 operators in most telecom service areas, and analysts say consolidation is inevitable.
Federal Telecommunications Minister Kapil Sibal, while unveiling the broad contours of a new telecom policy earlier this year, said the new rules expected later in 2011 will pave the way for consolidation, leaving about five-six operators in the country.
Mr. Rozanov thinks this will be difficult, but he too feels that India will be left with six operators--five private and one state-owned.
He said Sistema Shyam is open to buying or merging with an operator which offers services under the more popular global system for mobile communications, or GSM, technology. More than two-thirds of India's mobile subscribers use GSM phone services.
Sistema Shyam--which is 56.68% owned by Russia's Sistema JSFC (SSA.LN), 17.14% by the Russian Federation and the rest by India's Shyam Group--provides services on the less popular Code Division Multiple Access, or CDMA, technology, competing directly with Tata Teleservices and Reliance Communications.
Sistema Shyam has licenses to provide services in all of India's 22 service areas and offers telecommunications services under the MTS brand.
Commenting on a recent company decision to delay a planned initial public offering, Mr. Rozanov said "there is limited opportunity for us to realize value for our shareholders."
Apart from volatile market conditions, Mr. Rozanov also cited ongoing federal investigations into the alleged rigged sale of licenses and bandwidth in 2008, which have dampened sentiment in the sector.
IPO aside, Sistema Shyam has enough cash to meet its capital expenditure target of over $200 million to expand its business in 2011, hesaid.
The expansion plan includes a contract to ZTE Corp. for upgrading its networks to a newer technology.
The new technology, called Evolution-Data Optimized Revision B, offers better connectivity for data services such as multimedia.
The company plans to start offering services on this new technology in the July-September period.
Sistema Shyam's plans to expand its wireless broadband capability come after initial success for its high revenue data services, which now contribute about 25% of its overall revenue. The company, which follows a January-December financial year, reported revenue of 2.36 billion rupees in 2010.
Its average revenue per user--a key gauge of profitability for wireless telecom companies--for its mobile internet services was 250 rupees and 600 rupees per month for its prepaid and post-paid users, respectively. Its voice average revenue per user was 82 rupees a month.
Market leader Bharti Airtl's revenue per user is 194 rupees for the January-March period, with 15% coming from data services.
To push up its mobile internet revenue, Sistema Shyam is in talks with global computer makers to introduce tablet computers in the country later this year, Mr. Rozanov said.
And, despite the regulatory overhang and the intense competition, the company is still bullish on the sector, given that the country is adding more than 15 million new users every month, and that only about 33 of every 100 people living in rural India use mobile phones so far.
Sistema Shyam added about 800,000 new users in May, with about 88,000 being wireless broadband subscribers.
Combined with the expectation that call rates won't drop further, Sistema Shyam's plans to break even at the operating level by 2013 remain "on track," Mr. Rozanov said.
"We are on a risky track, a very harsh track... but on track," he said.