Sistema Wins India Telecoms License

APA holy man talking on a cell phone during a Hindu gathering in New Delhi.
AFK Sistema said Tuesday that its Indian subsidiary, Shyam Telelink, had obtained a pan-India telecom license, a deal that analysts said would strengthen Sistema's foothold in one of Asia's fastest-growing telecoms markets.

Sistema, billionaire Vladimir Yevtushenkov's holding company, said in a statement that it "has guaranteed $520 million of the total $630 million to be paid for obtaining the license."

The license will enable the company to build both mobile and fixed-line networks across India, but Sistema still needs to obtain frequencies to operate them.

Sistema said the timing of frequency allocation had yet to be determined.

"It is especially frustrating to obtain frequencies in India," said Irina Astafyeva, a telecoms analyst at J'son & Partners, a consulting company. "Lack of frequency allocation could still derail Sistema's push into India's telecom market."

Sistema paid $11.4 million in September for a 10 percent stake in Shyam Telelink, the basic telecom services provider for the Indian state of Rajasthan, which has a population of 62 million.

In October, Sistema signed a follow-up agreement for the acquisition of an additional 41 percent stake in the company, including a call option, which gives Sistema the right to increase its stake from 51 percent to 74 percent.

Sistema will have to invest $4 billion to $7 billion to roll out a national network in India, company spokesman Kirill Semyonov said Tuesday.

Alexander Goncharuk, Sistema's president and CEO, praised Shyam Telelink for meeting his company's expectations by securing the license for all of India.

"We consider India as one of the most attractive markets with a high growth potential," Goncharuk said in the company statement.

"Our plans, as a strategic investor, include building a national telecommunications network and providing our Indian customers with modern telecommunication services," he said.

India's subscriber base of mobile users rose by 8.32 million in November to 225.46 million, up 58 percent from a year earlier, according to the Telecom Regulation Authority of India. The country is expected to have close to 300 million mobile users by early 2008.

Over the past year, large Russian mobile phone companies such as Mobile TeleSystems -- a subsidiary of Sistema -- and VimpelCom have been shifting eastward to expand their profit base, which is becoming increasingly difficult in the highly saturated domestic market.

"Though the domestic telecom market brought in $20 billion in 2007, growth was only achieved through old clients acquiring new handsets rather than new clients signing up," Astafyeva said.

Sistema's thrust into India is part of a company strategy to capitalize on quick returns with low investment, a plan declared by the company a few years ago, she said.

Nadezhda Golubeva, a telecoms analyst at Aton Capital, said there were few telecom markets in the world as attractive as India's. "With more than 1 billion people and a mere 20 percent mobile phone penetration, it is natural that every Russian telecom company aspires to have a presence in the Indian market," she said.

Golubeva said risks were also involved, including problems obtaining frequencies and the political situation in the region, particularly terse relations with Pakistan. "But for Russian telecom companies, the risk levels are acceptable at the moment," she said. "At least, they are rated far lower than risks associated with the unstable political and economic situation in the Middle East."