3G, rural penetration to catalyse PE investments in telecom: Survey

According to a survey, mobile VAS, mobile broadband and telecom software companies, as well as companies providing services to telecom companies, are among the favourite sectors for PE & VC investors within the industry

Research firm Venture Intelligence has said that almost 70% of the private equity (PE) and venture capital (VC) investors feel that Indian telecom operators would be able to find and profitably serve the next 100 million mobile consumers from rural areas.

A majority of investors are also willing to bet that the introduction of 3G services can be a game changer for various players in Indian telecom, Venture Intelligence said in a survey of fund managers from over 50 PE & VC firms.

"In recent months, intense and rising competition levels, declining average revenues per user (ARPUs), high costs of 3G licenses and the impending introduction of mobile number portability (MNP), have placed significant challenges before the industry," said Arun Natarajan, chief executive, Venture Intelligence.

"At the same time, as the report reveals, investors feel the introduction of 3G and the increased emphasis by mobile operators on locally-relevant applications to enhance their ARPUs, will present investors with several interesting opportunities," he added.

While the appetite for investments in mobile operators is still high, PE & VC investors who have invested over $5 billion in telecom services and related companies over the past five years, are also actively scanning for 'downstream' opportunities including mobile value-added services (VAS), telecom software and investments in other service providers to telecom companies, the report said.
In a special article for the report, an expert from KPMG points out the various opportunities and challenges ahead for PE investments across various segments within the telecom sector. While the industry will continue to provide attractive returns that PE investors seek, the landscape is likely to remain dynamic and somewhat uncertain over the foreseeable future from the market, regulatory and industry perspective, KPMG feels.

Experts from Deloitte insist in their article that 3G has great potential to alter the dynamics of the Indian telecom market. Besides the expected adoption in the metros, the poor infrastructure on the fixed line side means that an increasing number of consumers are going to rely on their mobile phones for data-driven services, leading to a massive uptake as and when the infrastructure becomes available.

Mobile Value-Added Services (VAS) companies, who have so far been struggling in the shadows of the largely voice-focused mobile operators, are looking forward keenly to the advent of 3G which promises an opportunity to enhance their revenues through new types of services. TC Meenakshisundaram of IDG Ventures India, after analysing the emerging scenario, predicts that VAS will get its rightful priority in the operators' focus to maintain or increase their ARPU and profitability.

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