Real estate major Unitech wants to enter telecommunications

Indian real estate and construction major Unitech Ltd has decided to enter the country''s burgeoning telecommunications market. And it is planning to do so with a bang, with eight of its subsidiary companies submitting applications to provide unified access services in 22 telecom circles across India. A ''unified access services'' licence allows operations using several telecom technologies, including GSM and CDMA.

Taking these decisions on record at the 21 September 2007 meeting of its board of directors, the company''s directors "noted that the continuous rapid growth in India''s telephone services business indicates the enormous potential for future growth in this business."

What is a real estate group doing getting into the intensely competitive telecom business? Parsvnath, another real estate group, has also applied.

The Unitech board believes that the group has synergies with telecom. The board resolution says an entry into telecom "would help boost the group''s telecom and transmission tower manufacturing business. Thus, investment in this sector would provide immense potential for value addition to the group." The group is in the process of tying up finances as well as technology partners for its telecom plans.

With Unitech bunging in its bids, the government is reported to have received around 200 applications for new telecom licences. Over a dozen groups have applied, including Idea Cellular, Tata Teleservices, the Ruia-controlled BPL, Reliance Communications subsidiaries Swan and Cheetah, HFCL, Spice Telecom, Datacom, ByCell, Stel and Parsvnath. These include existing players wanting to extend their networks to additional circles.

Considering that the telecommunications industry has already begun to show a trend towards consolidation, the wannabe entrants into this already fragmented market seem to have one strong motive. That is to cash in on the high valuations that telecom companies, especially cellular phone companies, have been getting. Get a licence, build a decent-size market share, and then sell at a high price.

As the big players grow stronger, though, the new entrants are unlikely to get a price anywhere close to the $13.3-billion dollar deal struck by Hong Kong''s Hutchison Whampoa for the sale of its controlling stake in Hutchison Essar to Britain''s Vodafone. On the other hand, the entry of a player like Unitech could queer the pitch for some existing players that are hoping to exit with a fat packet.

A committee of the government''s department of telecommunications will evaluate the applications and also allocate spectrum according to a formula it will work out. The Telecom Regulatory Authority of India has recommended giving 3G spectrum only to existing operators. In the meanwhile, existing operators have claimed first right to available spectrum. They have sent a legal notice to the government asking it to immediately release radio frequency before it considers new applications.