Billionaire Dhoot's Videocon May Sell Majority Stake in Indian Phone Unit

Billionaire Venugopal Dhoot’s Videocon group may sell a controlling stake in its wireless unit to an overseas partner to help fund expansion of the business.

“We need a partner that’s globally focused on telecom to help us carry this forward,” Suresh Hegde, a director at the group, said in an interview in Mumbai yesterday. Videocon may sell as much as a majority stake in Videocon Telecommunications Ltd. after investing 50 billion rupees ($1.1 billion) in the network and spectrum for the mobile-phone company, he said.

Any bidder would compete with Vodafone Group Plc and Bharti Airtel Ltd. in India, where Videocon had a 0.3 percent share of the world’s second-largest wireless market by subscribers. A sale may also allow Videocon to inject funds into the group’s other businesses, which include consumer electronics, home appliances, and crude oil and natural gas.

“Any new company that wants to enter India will face a very tough road ahead,” said Naveen Kulkarni, an analyst at MF Global Ltd. in Mumbai.

Videocon is in early talks with potential overseas bidders, Hegde said, declining to identify any companies.

A price war that’s slashed India’s mobile-phone tariffs to as low as a penny a minute eroded earnings at Bharti Airtel, the nation’s largest carrier, and nearest rival Reliance Communications Ltd. The entry of international carriers into the market such as Norway’s Telenor ASA and Japan’s NTT DoCoMo Inc. has also intensified competition.

‘Most Valuable Asset’

The investor would gain access to a company that has licenses and spectrum in all of India’s 22 telecommunications zones. The business may be worth as much as 150 billion rupees, a valuation derived from the 677.2 billion rupees mobile-phone operators paid the government at an auction of third-generation wireless permits, according to Hegde.

“Today, spectrum is the most valuable asset,” said Hegde. Videocon’s second-generation global system for mobile communications airwaves should be valued at prices discovered through the 3G spectrum auction “because that’s the price an operator would have to pay today to acquire spectrum,” he said.

Reliance and eight mobile-phone companies competed in an auction in May for 3G airwaves to ease congested networks and tap new sources of revenue in a market that’s forecast by researcher Gartner Inc. to approach 1 billion wireless users by the end of 2014.

“It may make sense for an incumbent to pay a high price for spectrum, but not a new entrant,” said MF Global’s Kulkarni. “I don’t think the deal’s going to go through at this valuation.”

‘Ceding Control’

“We are open to selling a 26 percent or any larger stake,” Hegde said. “If we have a partner who is an existing big name, we don’t mind ceding control. Our goal is to earn money, rather than get wedded to telecom.”

Videocon, whose 700 billion won ($593 million) offer along with RHJ International to buy South Korea’s Daewoo Electronics Corp. was rejected by creditors in 2007, applied for mobile- phone licenses the same year. At the time, Dhoot said the group planned to sell a 26 percent stake in the wireless venture to a U.S.-based telecommunications company.

The Indian company started mobile-phone services in March this year and had 1.9 million subscribers at the end of June, according to data from India’s telecommunications regulator.

India ended June with 636 million wireless subscribers after adding 18 million users in the month. China, with 805 million mobile-phone customers, is the largest market.

To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

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