) is planning another attempt to re-enter the Indian telecom
industry by buying out a 25% stake in Indian billionaire, Mukesh
Ambani's venture, Reliance Jio Infocomm Ltd. According to
Bloomberg and elsewhere, AT&T's planned buyout for
approximately $3.5 billion will represent the largest foreign
direct investment in that country. This would bring Reliance
Jio's market value to approximately $14 billion.
AT&T's strategic move in the Indian market remains
consistent with its Project Velocity-IP plans launched in Nov
2012, to invest approximately $14 billion. Given the competitive
market conditions and saturation in the U.S. wireless industry,
AT&T seeks a greener pasture by expanding wings in the Asian
This is not the first time that AT&T has forayed into the
Indian sub-continent. Previously, it owned one-third equity in a
telecom joint venture (now known as Idea Cellular) formed by the
company and Indian corporate giants Tata Group and Aditya Birla
Group. However, in 2004, AT&T exited the market by selling
its 32.9% stake to the remaining stakeholders.
After almost a decade, the company is contemplating a new
entry in India, where lucrative business opportunities are still
prevalent thanks to rapid reforms. According to market reports,
the country boosts the second largest wireless networks globally
after China, based on subscribers.
This sector has been the one of the largest in India to
attract foreign direct investment. These investments contribute
to its accelerated growth rate of 7% and business revenues of
over $50 billion as per the 2010-2011 financial year
Further, the telecom sector in India remains one of the
key business grounds for telecom giants like
Vodafone Group PLC
) -- the second largest operator after
China Mobile Limited
) -- and the home turf of the world's third largest telecom
operator, Bharti Airtel Limited, based on subscribers.
However, the Indian telecom market is characterized by one of
the lowest call tariffs in the world due to growing
competitiveness with increased participation by some of the
largest players in the global telecom space. This is resulting
into high losses and diminishing profitability of the operators
The sector however lacks proper infrastructure, which has
restricted its growth to only 2G and 3G network deployments while
developments in the LTE space is still lagging. Despite these
drawbacks, AT&T's interest in Reliance Jio could be the
spectrum holding that lies with it through winning License for
Broadband Wireless Access (BWA) Spectrum in 22 circles across
India, auctioned by the government in 2010.
Given the acquisition of spectrum, the company aims at
deploying LTE across the country, expanding wireless data
services. The company plans to invest around Rupees 500 billion
in LTE deployments and has collaborated with Spirit DSP to
deliver voice and video calls over LTE.
We believe AT&T, with its investments in Reliance Jio
would be able to catapult the Indian LTE market and gain
significantly from the current market scenario of emerging
prospects given a lower rate of penetration in the LTE space.
AT&T that operates with other network provider,
Verizon Communications Inc.
) has a Zacks Rank #3 (Hold).
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