Telenor is investing Rs61.2bn in Unitech Wireless for a 60% stake, valuing it at Rs102bn (U$2bn). Unitech has a pan-India telecom license with spectrum allotted in 13 of the 22 circles till date. It plans to launch services during 1H09 and incur US$3bn capex over the next 3 years (equal to Bharti Airtel’s 1 year capex). Telnor gets management control from day-1 and 4 of the 7 board representatives.
The economics of new entrant don’t justify the high valuations – US$2bn valuation is high in the context of our assessment of the business model of a new entrant. Compare this with the track record of Idea Cellular in its new circles, both in terms of market share and EBITDA, indicates that that this would be a fairly optimistic scenario for a crowded market.
Telnor will face large incumbents with scale, high competitive intensity and already low tariffs.