July 4, 2008

Telecom Firms Set Their Sights on Asian Market DEALTALK

By Michael Flaherty

A burst of telecommunications deals across Asia underscores the rising confidence and desire among industry executives to seek growth beyond their borders through acquisitions, partnerships and outside investment.

The deals involve not just China, which adds 8.5 million new mobile phone subscribers a month, or India, the world's fastest- growing mobile market.

Telecoms in Malaysia and Indonesia are getting into the mix, hoping to increase profits by linking up with other parts of a massive and growing consumer base in Asia.

Despite the credit crunch and drop in global mergers and acquisitions activity, telecom acquisitions into or out of Asia, excluding Japan, are on pace to match the $59.8 billion worth of deals reached last year, according to Thomson Reuters data.

"Asian management teams are increasingly more confident and more ambitious in their ability to run large global operations and derive cost synergies," said Rahul Shukla, head of technology, media and telecom investment banking in Asia for Citigroup.

Shukla's team is advising AK Khan & Co. in its deal with NTT DoCoMo. NTT DoCoMo, the top Japanese mobile phone operator, said last month that it planned to buy AK Khan's 30 percent stake in Aktel of Bangladesh for $350 million, gaining a foothold in one of the fastest-growing Asian mobile markets.

The largest mobile company in Indonesia, Telekomunikasi Selular, said last month that it was in talks with Qatar Telecom to bring its mobile payments business to the Middle East.

Idea Cellular of India said last week that it would buy a 40.8 percent stake in a smaller rival, Spice Telecom, for $508 million. The deal would give TM International, a unit of Telekom Malaysia, a piece of the Indian market.

The Indian mobile operator Reliance Communications and MTN Group of South Africa continue to discuss a possible combination that would create a telecom company that ranked among the world's 10 largest, with operations in about two dozen countries.

China Mobile, the country's top mobile operator, denied that it bid for MTN in May but said it was interested in the South African market.

Meanwhile, Huawei Technologies, a telecom equipment maker in China, is auctioning off a majority stake in its phone division - worth several billion dollars - hoping to partner with a company to help the unit expand in the United States.

Whether it is an Asian corporation looking outbound, or a foreign player wanting in, the common denominator is the same: chasing massive growth in Asian consumer markets.

China's total number of mobile subscribers reached 575 million by the end of March, according to state data.

Vodafone Group of Britain bought a controlling stake in Hutchison Essar of India last March, expecting to add 1.5 million users a month.

India was adding more than six million users every month at the time of the deal.

Buying into an emerging market, whether a domestic or foreign company, is not without its challenges. Competition is rising across the region, especially in India and China.

Overseas acquisitions are also difficult, for reasons including culture, regulation, technology and logistics.

TCL Communication Technology Holdings, the Chinese cellphone maker, agreed to a deal in 2004 allowing it to acquire the troubled phone business of the French telecom equipment maker Alcatel. TCL struggled for years to turn around the division.

Originally published by Reuters.

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