India's BPL mulling mobile merger

Mobile operator BPL is eyeing a merger to win India's market of 3.7 million cell phone users

By CNN's Kristie Lu Stout

MUMBAI, India (CNN) -- BPL plans to expand with a merger by year-end, according to a report.

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

BPL has hired advisers to help it survive the wave of consolidation in India's mobile market, according to The Economic Times of India.

"There will be a big bang merger soon," BPL Innovision group chairman Rajeev Chandrasekhar told the newspaper. "We are still working on the way in which we can get the best value for our business."

'Big bang merger'

BPL is the No. 2 cellular operator in India, with around 700,000 subscribers at the end of April. All told, 3.7 million people use mobile phones in India.

Sources close to the company said Arthur Andersen is going forward with a valuation of BPL's total cellular holdings to assist a merger, the newspaper stated.

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

Chandrasekhar did not reveal BPL's proposed partner.

Analysts see the move as part of a trend among Indian mobile operators.

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

Major players in the Indian mobile market include the market leader Hutchison, BPL, Bharti and Birla-AT&T-Tata. Reliance is also expanding away from its roots in energy into mobile-phone service.

Hutchison, with 800,000 subscribers as of May 2001, currently has 100,000 more mobile subscribers than BPL in India.

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.

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

Mazumdar said Bharti might soon eclipse BPL as No. 2.

Last month, Bharti received a $460 million capital injection. That included $200 million each from SingTel and Warburg Pincus.

The war chest may well give Bharti an advantage when the Indian government sells a fourth round of cellular licenses by September.

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," Mazumdar at UBS Warburg said.

From zero to 3.7 million

India's mobile market has surged 89 percent in the last year to reach 3.7 million subscribers by May.

The Cellular Operators' Association of India (COAI) said the growth stems from a better licensing environment that led to cheaper calls.

Cellular rates in India have fallen by 50 to 75 percent over the last two years, to an average of about 4 cents (2 rupees) a minute.

Industry watchers say rates will drop even more with more competition after the cellular license auctions.