Friday, March 7, 2008

India Telecom Landscape and UT's Strategic Wins

Lightreading had a nice article on the telecom landscape in India.

On the fixed-line side, BSNL dominates with 31.6 million subscribers, followed by MTNL, Bharti Airtel, Reliance, Tata, and a couple of smaller ones.

UT recently announced during the Merriman conference that they had won a 3rd and 4th iptv customer but cannot announce them yet. We know UT has won with MTNL and Bharti and Microsoft has teamed up with Reliance. The wins with BSNL in the broadband area suggests that the two new wins are with BSNL and probably with Tata. Because of the skewed number of lines that BSNL has, winning 4 out of the 5 iptv customers would mean almost 97% of the potential iptv market. The number of broadband lines able to support iptv is nowhere near what it is in China but the strategic wins in India show that both the BBBU and MCBU will have a strong pipeline of contracts and growth for years to come.

Unlike in China, the wins in India are even more attractive to potential suitors such as Ericsson, Alcatel-Lucent, NSN, Cisco, Nortel, etc who are trying to expand into high growth countries that don't have local equipment providers (such as in China's ZTE/Huawei). While UT has had problems with their initial contracts in India (with writedowns of $30m in 2006 and 8m last quarter), management has indicated that gross margins in the broadband unit will be over 20% in each quarter for 2008. Hopefully, they have turned the corner and learned from their past contracts in India and can fully take advantage of the growth in India.

One last note regarding the India landscape. Back in late 2006, Merrill Lynch's report on UTs prospects did NOT even include India IPTV and India revenues at that time was only in the $20-30m/yearly run rate. Sooner or later, the market will catch on to UTs progress in IPTV and India and may even give the company a little bit of credit (valuation bump) for it.

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