Qualcomm in India Broadband Venture
Posted Jul 30, 2010
Wall Street Journal
By R. JAI KRISHNA, KENAN MACHADO and ROMIT GUHA
NEW DELHI—Qualcomm Inc. confirmed Friday it is forming a joint venture with India's Global Holding Corp. and Tulip Telecom Ltd. to build a network for offering wireless broadband services in the South Asian nation.
The U.S. mobile-phone chip maker's decision to offer each local company a 13% stake in the venture for $28.86 million each will help it enter India's nascent wireless broadband segment. The move comes at a time when the Indian government has been pushing to increase broadband Internet usage in a country where just more than nine million people have access to such connectivity.
Qualcomm will hold 74% of the venture by investing $164.3 million, the companies said. The India-registered venture will have an enterprise value of $1.11 billion, with $222 million as equity and $888 million as debt, after the deal is closed.
"Our objective was to secure initial shareholders who are operator-neutral, yet bring strong telecom and broadband experience," Qualcomm India President Kanwalinder Singh said Friday.
Global Holding controls GTL Ltd. and GTL Infrastructure Ltd., both of which offer infrastructure to telecom companies. Tulip Telecom provides networking services to companies and governments.
Qualcomm recently won a license and bandwidth to offer wireless broadband in four service areas of Delhi, Mumbai, Kerala and Haryana at a cost of more than $1 billion in a government-run auction.
The spectrum will let winners offer high-speed Internet access, as well as Internet telephony and TV services. More importantly, the winners can eventually use the bandwidth for voice and high-speed data services. But the winners of the spectrum have to separately apply for additional service licenses.
Though the Indian government allowed foreign companies to bid for radio wave licenses, they can offer services only through an India-registered firm, in which the foreign firm can't own more than 74%.
Qualcomm said it will apply for an Internet-service-provider license after getting approvals for the deal and will create four companies as part of the venture for the four service areas. It expects to get spectrum within two to three months and hopes to launch broadband services in 2011.
It had earlier said it will set up the venture and exit it after creating a long-term evolution, or LTE, network to roll out broadband wireless access services.
LTE is a technology that offers high-speed broadband and high-end multimedia services.
Choosing to offer wireless broadband services using the LTE technology will pit the new venture directly against billionaire Mukesh Ambani's Reliance Industries Ltd., which surprised many by picking up a 95% stake in Infotel Broadband Services Pvt. Infotel is the only company to have won licenses for all 22 service areas in the auction.
But Qualcomm's Mr. Singh said the company isn't looking to be the consumer face of the venture and is in talks with recent winners of the third-generation mobile telephony bandwidth to use the venture's network to offer broadband services.
Analysts, however, warn about the practicality of the venture.
"I think these things are still way out and it's not going to be easy. The LTE technology is at least a couple of years out in terms of the state of readiness," said an analyst with a foreign brokerage. "These guys (Qualcomm and partners) will have challenges."
The bandwidth auctions were part of the government's efforts to expand Internet service in the country of about 1.2 billion people.
The National Broadband Policy, announced in 2004, expected 20 million broadband connections by 2010, but that hasn't been met.
India's telecom regulator estimates the country to have about 48 million broadband users by 2012, and about 100 million by 2014.
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