India's BPL, Birla in mega mobile merger

India has 3.7 million mobile subscribers

By CNN's Kristie Lu Stout and wire reports

NEW DELHI, India -- Indian mobile phone giants BPL and Birla-AT&T-Tata have decided to merge, riding the consolidation wave in India's market of 3.7 million mobile users.

BPL is India's second largest cellular operator, with about 700,000 subscribers as of May 2001. The Birla-AT&T-Tata alliance is the country's number-four mobile operator.

But analysts say even merging into a bigger player may not be enough to keep the number-three mobile operator Bharti at bay.

India's largest mobile company

A merger between the two unlisted companies will create India's largest mobile company with a million-plus customers and a dominant presence in the mobile markets of western and southern India.

BPL operates mobile networks in Bombay and the states of Maharashtra, Kerala and Tamil Nadu through two operating companies, BPL Cellular and BPL Mobile Communications.

France Telecom holds a 26 percent stake in BPL Mobile Communications while MediaOne, a U.S. company acquired by AT&T last year, holds a 49 percent stake in BPL Cellular.

Birla-AT&T-Tata, a joint venture between U.S. telecom giant AT&T and two of India's biggest conglomerates, the Tata and Birla groups, runs mobile networks in Maharashtra, Gujarat, Madhya Pradesh and Andhra Pradesh.

BPL Innovision group chairman Rajeev Chandrasekhar told reporters two weeks ago that consolidation is key to the company's future.

"The world over, consolidation is taking place in this sector to remain competitive and have access to capital," Chandrasekhar told the Economic Times.

"If you have to enhance the value of your business that is the only way out and very soon we will consolidate into something that becomes the largest Indian cellular play."

Analysts see the move as representative of a greater trend throughout the Indian mobile sector.

"It's an ongoing consolidation," Gartner Group mobile analyst Nick Ingelbrecht told CNN.

"The Indian market is really picking up now. Finally, the market is starting to see some serious growth and that's good."

But Bharti to grow bigger

The other major player in the Indian mobile market is the leader Hutchison, which with 800,000 subscribers as of May 2001, has a 100,000-subscriber lead on BPL.

Bharti trails Hutch and BPL with about 650,00 mobile users. But analysts say Bharti, as India's fastest growing mobile operator, is set to become an even bigger force in the booming sector.

Reliance is also emerging from its petrochemical legacy as a potential mobile contender.

"Bharti is coming up to bat," said UBS Warburg's Susanta Mazumdar. "Interestingly, it is growing faster than all of them."

"What might happen is BPL might be the third largest in the near time."

Last month, Bharti received an additional equity investment totaling $460 million. The capital injection included $200 million each from SingTel and Warburg Pincus.

With its war chest, Bharti may also gain an advantage when the Indian government awards licenses for fourth cellular operators next month.

Analysts say cash-rich mobile players like Bharti, Reliance and Hutchison will fare well in the auctions -- as opposed to BPL.

"BPL is tight on cash, and it will be hard for them to expand," said UBS Warburg's Mazumdar.

From zero to 3.7 million

India's mobile market has surged 89 percent in the last year to reach a total of 3.7 million subscribers by the end of April 2001.

The Cellular Operators' Association of India (COAI) said the growth in usage stems from a more favorable licensing environment that in turn encouraged a fall in airtime rates.

Cellular rates in India have fallen by 50 to 75 percent over the last two years to hit a current rate of about $0.04 (2 rupees) per minute on average.

Industry watchers say rates will drop even more when additional competition is introduced after the cellular license auctions in August.

Reuters contributed to this report.