THERE’S been frenzied growth in India’s telecommunications sector in recent years, as millions of Indians — including the less affluent and the poor — discover the joys of connecting to their relatives and friends through mobile phones.

Not surprising then that international telecoms giants and private equity funds are also discovering the joys of connecting to a nation that has emerged as the world’s fastest growing telecommunications market. Many of them have been announcing multi-billion-dollar deals in recent weeks, acquiring stakes in companies.

Every month, eight million new cell phone subscribers sign up for services. There are about 250 million cell phone users in India at present. This is expected to double to 500 million in just over two years. By 2012, one in every second Indian will be sporting a mobile phone, as the cell phone market is expected to expand to 600 million subscribers.

The sector got a boost recently with the government granting licences to over half a dozen players to operate services in multiple circles. They include two existing telecom giants, Reliance and Tatas, both of whom have been granted GSM (global system for mobile phone) licences. The two companies have been operating the CDMA (Code division multiple access) network, and are now planning to unfold their GSM systems across the country.

The entry of new players will mean a further fall in telecom tariffs. Some analysts expect a 25 per cent cut in tariffs, as the new players come out with attractive packages to lure customers. The savage price war that is expected over the coming months will also witness a major shake-up in the industry, and many of the new entrants are likely to be taken over by the bigger fish.

According to industry estimates, the next two years will see investments of about $25 billion, as telecom service providers rush to capture a large chunk of the market, comprising 250 million to 350 million new subscribers. This will be the single largest investment in the telecommunications sector anywhere in the world.

The new players who have been awarded licences recently are expected to invest about $15 billion, while the existing half a dozen operators – with nationwide services – are likely to plough in another $12 billion.

The telecommunications firms will be raising funds through borrowings, equity (by going in for public offers) and tapping private equity players. With interest rates in the US heading southwards, many funds are eager to invest in the Indian telecommunication sector, where returns have been substantial.

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THE past few days have seen several major deals being announced between Indian telecom majors and global financiers. Last week, Kohlberg Kravis Roberts & Co (KKR), a leading private equity fund, paid $250 million for a 2.5 per cent stake in Bharti Infratel, a subsidiary of one of the largest private Indian telecom player, Bharti Airtel.

A few days earlier Morgan Stanley picked up a stake in independent telecom infrastructure firm TowerVision for about $300 million. TowerVision plans to utilise the funds to raise the number of telecom towers in its portfolio to 6,000 over the next one year. The company was promoted by British and Israeli partners.

The Anil Dhirubhai Ambani Group (ADAG), which owns Reliance Communications, also announced plans to launch an initial public offer (IPO), hoping to raise about $1.5 billion by selling a 10 per cent stake in its subsidiary, Reliance Infratel. Reliance Communications will offer nearly 90 million shares in its subsidiary to investors.

ADAG is on a fund-raising spree to finance the ambitious projects that it plans to take on hand. It recently floated Reliance Power, attracting investments worth a whopping $200 billion. The group also plans to float Reliance Entertainment, the media and entertainment unit, shortly.

The Reliance Power scrip will be listing on the Bombay Stock Exchange today. Though a new company – with virtually no assets on its books – it managed to break all previous records and create stock market history by attracting over five million bids from investors. The issue attracted over $3 billion in the very first minute that it opened. The company will also be having over four million shareholders on listing, again a record in the Indian capital markets.

Reliance Communications also plans to invest about $2 billion in its telecom infrastructure subsidiary, besides another $1.3 billion for the nationwide roll-out of its GSM network. Reliance Infratel will have about 60,000 telecom towers by next March, more than doubling its present strength of 25,000 towers.

Earlier, the company had sold a five per cent stake in Reliance Infratel for nearly $350 million to international investors including HSBC Principal Investments, George Soros’ Quantum Fund, Fortress Capital and the Galleon group among others.

The booming telecommunications infrastructure sector has attracted other international lenders, besides KKR. In December, Bharti Airtel had sold a nine per cent stake in Bharti Infratel for a billion dollars to over half a dozen international investors, including Singapore’s Temasek, Goldman Sachs, Citigroup, the Investment Corporation of Dubai, Macquarie and AIF Capital. On the basis of these deals, Bharti Infratel’s enterprise value has been placed at over $10 billion. The company owns 20,000 mobile towers and has a 42 per cent stake in Indus Towers, a joint venture with international telecom major Vodafone and India’s Idea Cellular.

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INDIA’S mobile tower business is expected to witness remarkable growth, as several new players enter the fray, and existing companies expand their services to semi-urban and rural areas.

There are about 125,000 mobile towers in India today. This is expected to touch nearly 300,000 in a little over two years, as the number of mobile phone subscribers doubles to 500 million.

While in the past most of the mobile phone service providers installed their own towers, there is an increasing trend today of several firms sharing the infrastructure. It costs an average of about Rs2.5 million to set up a mobile phone tower. A cell phone company with an all-India licence would need about 10,000 towers, which would cost about Rs25 billion.

Many companies are now establishing towers that they share with multiple service providers. Both Bharti Airtel and Reliance Communications — who have spun out their subsidiaries – provide a common platform to others, including rivals. Average rents works out to about Rs25,000 a month for a tower.

The lucrative telecom towers business has also attracted many international players. American Tower Corporation, a US-based firm, is making a foray into India. TowerVision is owned by Ashmore Investment of the UK, and has won contracts from players like Spice Communications, to build and lease about 1,000 towers.

Another US-based investor, Q Investment, is backing Xcel Telecom with $500 million in funding; the company plans to install about 2,000 towers, besides acquiring smaller players. Europe’s Rambolls Telecom Towers has also a significant presence in India. Smaller players include Aster Tower, which has obtained funding of about $35 million from US-based funds.

GTL, an Indian telecom major, has also got international funding of over $250 million from private equity investors. GTL last week entered into an alliance with Ericsson, which has outsourced its network infrastructure services in the UK to the Indian firm.

A special purpose vehicle – GTL M&A Services – has been set up to provide services in the UK. According to Manoj Tirodkar, chairman and managing director, GTL, the company will provide passive site maintenance, engineering and remote management services to network operators and service providers in the UK. Ericsson will look after sales and marketing.

Tirodkar believes other international majors will also consider outsourcing such services to Indian companies. “We see a trend as other operators are also looking for cost arbitrage and economies of scale,” he notes.

With the Indian telecommunication sector on a roll, domestic firms are now looking at offering their services to countries around the world.