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August 25, 2007

"Indian telcos need to be valued differently"

Randall L. Stephenson, Chairman & CEO of AT&T Inc., in an interview to
Business Today:
People keep missing this market. They keep evaluating the market using old traditional ways of valuing the cellular business. We come from the us and in the western culture and we are accustomed to these $30 (Rs 1,230), $40 (Rs 1,640), $50 (Rs 2,050) revenue per subscriber numbers. Who would have ever thought that you can make money at $8 (Rs 328) or $9 (Rs 369) per subscriber? So, here is a market where I would have never forecasted that companies coming here and are making 30 to 40 per cent profit at $8 revenue per subscriber. The model's very different here. The cost structures are very different here. They are engineering the networks very differently here.

I guess what I am suggesting is, looking at the numbers, you've got to look at India differently. This market is about 17 per cent penetrated with wireless. So, can you penetrate the rest? I suspect you probably can. But you need to look at what model would the government put in place to get infrastructure out there. So, with just 17 per cent penetration the market is just getting started.

...Considering the fast economic growth of India and the intellectual capital, I think achieving a 50 per cent penetration with a $7 (Rs 287)-revenue per user seems very achievable. I have no doubts that number is achievable. I have seen it play itself out far too many times.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.