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Swan Telecom - Building a platform to launch operations

November 15, 2008
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The massive growth potential in the Indian telecom sector, indicated by the 29 per cent mobile teledensity, low internet and broadband subscriber base, and new services like internet protocol TV, direct to home and mobile TV, has led many companies to try to enter the sector. In October 2007, about two dozen companies from diverse business verticals submitted over 500 applications for telecom licences across India.

Of these applicants, only a few made it. Realty-backed Swan Telecom was amongst the six companies that got a break to enter the world's fastest growing telecom market.

Swan was allotted the spectrum required to offer mobile services early this year. Recently, it became the first of the new telecom licensees to divest a part of its stake to a strategic foreign telecom player. It sold 45 per cent stake to UAEbased Emirates Telecommunications Corporation (Etisalat), the largest telEcom operator in the Arab region, for $900 million. The remaining 55 per cent stake in Swan is held by several entities including the Dynamix Balwas Group, a Mumbai-based real estate and hospitality company. Based on the valuation in the Etisalat deal, Swan, which paid about Rs 14 billion for its licences in 13 circles, is now worth $2 billion.

Following its deal with Etisalat, Swan Telecom has received another shot in the arm. It has obtained the Department of Telecommunications' approval to offer both national long distance (NLD) and international long distance (ILD) services, in addition to getting approval to operate as an internet service provider (ISP). These three additional licences will enable Swan to offer a complete array of telecom services, from mobile, fixed line and internet services to carrying voice and data traffic.

On the move
While Swan has got the requisite licences and an experienced partner, the company has to set up its business from scratch and is, therefore, looking to put together an experienced team. In mid-2008, the company roped in Reliance Communications' (RCOM) Maharashtra circle head, Atul Jhamb, as its chief executive officer (CEO). RCOM's vigilance head, Vinod Budhiraja, was also given a senior position at Swan.

Though Jhamb clearly has an uphill task of establishing the company, he seems to be positive about making it a successful venture.

In fact, work has already started. Taking advantage of the current policy that allows both active and passive infrastructure sharing, Swan has entered into a strategic alliance with Bharat Sanchar Nigam Limited (BSNL) to utilise the network of the state-owned telecom operator to begin its operations. Under the tie-up, Swan can use BSNL's leased lines and fibre optic backbone and route NLD traffic through BSNL's network. The agreement also includes intra-circle and intercircle roaming arrangements and cooperation in planning infrastructure expansion. According to sources, BSNL will charge Re 0.52 per minute for every outgoing call, and the rates will be revised after six months. The incremental cost of upgrading BSNL's equipment to provide roaming facilities will be borne by the private operator. Swan is also in talks with other existing operators and standalone tower companies for entering into infrastructurEsharing agreements.

According to some experts, while a pan-Indian rollout could cost a new operator $4-5 billion, a comprEhensive infrastructure-sharing alliance with an incumbent operator could reduce the cost by half. Others, however, point out that such a deal might not be practical given the high level of competition between the telecom operators.

Swan Telecom, meanwhile, is planning to acquire the mobile licences held by Allianz Infratech. The latter has the licences to launch services in two circles, Madhya Pradesh and Bihar, in which Swan does not. If the deal with Allianz Infratech comes through, Swan will be able to provide telecom services in 15 circles covering over a billion people. However, it's not yet clear whether a new player like Allianz can sell out under the current merger and acquisition norms.

For now, Swan's priority will be to put in place a network guaranteeing basic coverage. According to the current rollout obligations, operators must achieve 10 per cent coverage of the district headquarters within the first year of spectrum allotment within a circle, and 50 per cent by the third year.

However, none of the new licensees is likely to meet these obligations because of the difficulty and prohibitive cost of raising funds. Swan, which has just got an infusion of funds from its foreign partner, is aiming to launch services by March 2009. It remains to be seen how well the company will fare in this extremely competitive sector.

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