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Etisalat eyes controlling stake in Cheers as Indian government withdraws BSNL IPO

As an apparent reaction to the state-owned operator BSNL reporting its first ever annual loss earlier this year, the government of India has reneged on plans for an initial public offering (IPO) of shares in the firm.

There are several possible causes for the operator’s falling revenues, with the recent spectrum auctions a likely candidate. As a state-owned operator, BSNL has the disadvantage of being obliged to pay extra costs for 3G licences, while private operators are exempt from these fees. This fact was likely only exacerbated by the unexpectedly high bids that the licences attracted at auction.

BSNL’s revenues have suffered as market competition has grown stronger, with its landline business in particular coming under fire. In addition to this, the operator was recently forced to pay out a large amount in withheld wages, under pressure from India’s pay commission.  The company’s problems continue to grow; with a 3G offering that has failed to draw large numbers of customers, the operator has allegedly exaggerated its figures to suggest a larger subscriber base.

The planned IPO was floated as an option by a government detail tasked with assessing the options for BSNL; however, the mooted 30% sale of the company was rejected by India’s labour unions, among other stakeholders.

Meanwhile, UAE operator Etisalat is looking to acquire a controlling stake in another Indian operator – its own joint venture, Etisalat DB. Having had its first proposal refused by the Indian government on “technical grounds”, Etisalat has again requested to increase its stake from 44.73% to 50% plus one share.

Exactly whose shares Etisalat would purchase is not yet apparent; DB Etisalat VP Shahid Balwa has stated that the other partner in the joint venture, DB Group, would retain a stake of around 45% in the Indian operator. Genex Exim Ventures and Delphi Investments both hold minority stakes of 5.27% and 4.27% respectively.

Formerly Swan Telecom, Etisalat DB obtained its licence in 2008 and began trialling services earlier this year under the Cheers Mobile brand. It holds licences for 15 areas and plans to launch services in all of them; currently, it has begun operations in 9 of these.

There are mixed messages concerning Etisalat’s intentions, as it has reportedly shown interest in purchasing stakes in other operators such as R-Com and IDEA Cellular – and India’s M&A laws would prevent it from purchasing a stake in a larger rival without first selling its current stake in Etisalat DB.

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