Posts Tagged ‘iphone’

AT&T eyes 25% stake in India’s BSNL as 3G comes to the fore

att-logo-orangeAccording to the Economic Times of India, domestic US telecom giant AT&T is in talks with state controlled Bharat Sanchar Nigam (BSNL) regarding placing an investment, that would see the company make a comeback in one of the fastest growing telecoms sectors. With mobile penetration advancing from 2% in 2005 to over 40% in 2009, still leaving plenty of room for growth.

AT&T (NYSE: T), which has been expanding its mobility business globally, quit the Indian mobile sector in 2005, selling its 33% stake in Idea Cellular following it’s merger with Cingular Wireless. It received around $250 million from the stake in Idea,that stake would now be valued at circa $3.5 billion. So a strategic mistake, that the New Jersey based company looks keen to repair. CEO Randall Stephenson spent much of 2008 in acquisition talks with Reliance, Idea and Aircel Cellular parent Maxis Communications, demonstrating a real desire to take a piece of the action.

BSNL has suffered from lackluster performance, as it’s monopoly has been slowly eroded over time, with new entrants carving up the market, especially in the mobile sector. The launch of 3G licences this year has seen heavyweight MNC telcos taking a greater stake in this huge growth market. Vodafone (UK) acquired Essar, Mobile TeleSystems (Russia) entered the market via Shyam Teleservices,  DoCoMo (Japan) has formed a joint venture with Tata Teleservices, whilst Telenor (Norway) has taken a passive route by acquiring shares in Unitech Wireless & SingTel (Singapore) has also invested heavily in Bharti Aircel, alongside Telia (Sweden) & BT (UK).

The Indian government reiterated plans to publicly list BSNL in July , although a firm time frame has not been committed to. Earlier that month, BSNL chairman Kuldeep Goyal said that the company was exploring a possible stake sale to a foreign firm to raise funds to help it compete better against its domestic rivals; however, he didn’t comment on how large the stake would be.

According to BSNL’s FY 2008 accounts, the value of the company is circa $17Bn. MTNL, the second of the telecom monopolies, which operates purely in Delhi & Mumbai, currently trades on the Bombay Stock Exchange  at Rs95 ($1.95) per share. BSNL would be expected to attain a much hirer premium, as it is the only current national carrier & market watchers have stated that post IP the company could be worth anything from $13Bn & $16.3Bn 65,000. Sources state that AT&T is interested in a 25% stake, so would need to buy in with $3Bn / $4Bn to make this work.

At present BSNL is the leader in all services in its license area, with over than 49 million mobile subscribers (17% market share), 35% fixed line subscribers (85% market share) & 2.5 million broadband subscribers.

I can see this coming off, as AT&T can offer extended network services & serious technical know how to BSNL, an area in which the company has lagged. AT&T India also operates a state of the art IP MPLS network across India that will also help the Indian company to expand it’s offerings into the burgeoning Enterprise market. With the Indian mobile market set to double by 2014, this would also give access to a potentially huge subscriber base of 100 million & dare I say it, a potential launch pad for iPhone.

For BSNL, this could be a great route to forestall the new & legacy players across the sub-continent, particularly in mobile & broadband, more importantly with infrastructure restrictions, LTE could play a defining role for any telecoms carrier in India.

Granted, this is all pure speculation at this point, however, if the rumoured talks firm up, I’ll be taking a long hard look at AT&T again.

Original post can be found at MyStockVoice.com

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Nokia to remain the market leader … helped by Emerging Market expansion

nokiaNokia the worlds biggest manufacturer of mobile devices , still enjoys a 40% global market share, dwarfing it’s nearest competition; Motorola (NYSE : MOT), Sony-Ericsson, Samsung, & LG. The company is particularly strong on an international basis, with top market share in practilally all markets served. More importantly, from a MyStockVoice perspective, 80% of sales come from outside the US. With recent advances in 3G licensing in Asia, notably Vietnam, India & China, Nokia (NYSE : NOK) looks well set to come out as the real winner from the mobile broadband explosion.

The company’s scale allows it to produce what is now regarded as a commodity product (low-end cell phones) at a much cheaper prices than it’s competitors. Nokia’s dominace in the mobile handset market sees it  earning roughly 15% profit even on entry-level units, while it’s most profitable competitor, Samsung, reputedly earns slightly above 13%.

Nokia is also working on growing it’s service offerings, expanding into music & games, whilst adding compatible location based services (LBS)with the recent acquisition of NAVTEQ. The strategy being that Nokia can earn incremental revenue from these services whilst building brand loyalty/customer lock-in, as users become accustomed to Nokia’s services & will opt to replace their existing handset & existing services with another Nokia model instead of migrating to a competitor.

From a financial point of view, Nokia holds an enviable position. The current balance sheet shows €5.5 billion against about €4.4 billion in debt, 70% of which is in short term notes.  Return on capital is pretty impressive to date, since 2004, ROIC is over 160%, & standard return on capital is equally impressive at 75%. Operating margins run at circa 13%, with free cash flow at 9%. For the long term investor, Nokia also has a track record of delivering a dividend yield of close to 4%. That said, the dividend rate was cut by 20% in January to reflect the impact of the gloabl downturn.

Nokia is clearly facing some major competition in the high end “smartphone” category, which is judged to be the fastest growing sub-sector of the market. While Nokia is still the world’s biggest smartphone maker, competitors Apple (Nasdaq : AAPL) with the iPhone & Research in Motion (Nasdaq : RIMM) with its Blackberry range have both  quickly gained market share , whilst Asian manufacturers such as HTC are also proving to be a thorn in the flesh.

My take is that if Nokia can crack some key markets in SE Asia, India & China, they will be able to surpass their upstart rivals, although in China, native handset makers will obviously have a first pass; e.g. TD-SCDMA with China Mobile . Nokia has a long track record with Vodafone, Orange & Telefonica, all of whom are increasingly active in Emerging Markets. With a retrospective look at the last quarters results & with the current overly sold price, I am looking at Nokia as a winner, 6 moth personal target price of $18.50 on the ADR