Global Tele’s broadband plans take off - Views on News from Equitymaster

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Global Tele’s broadband plans take off

Mar 21, 2000

Enron Corporation, MSEB and telecom infrastructure giant Global Tele-Systems are together investing close to Rs 6 bn to create a fibre optic link of 5,000 kms throughout major towns and cities in Maharashtra. This deal heralds the first broadband investment in the country. Global Tele-systems is one of India’s leading companies engaged in the business of tele-communications, e-commerce and Internet services. It is also involved in developing payment gateways and providing bandwidths towards the same.

The decision to participate in this venture is a step in the right direction as it fits well with the overall objectives of the firm. Access to an optic fibre network will enable the company to roll out broad band Internet services even as other players grapple to upgrade their existing cable networks. Moreover the presence of Enron and Maharashtra State Electricity Board (MSEB) will ensure that the company has access to world class technology and extensive infrastructure (though only in the state of Maharashtra).

Global Tele-Systems’ share of equity (20%) would amount to Rs 1.2 bn. The company would have to raise the necessary funds for the investment either by way of deploying internal resources, by raising debt or issuing fresh equity. Keeping in mind the favourable sentiment in the market towards telecom stocks, raising funds should not be a problem. While raising debt would exert pressure on the bottomline, as interest burden would rise, issuing fresh equity would result in a dilution of earnings.

Moreover, the fact that the new venture is looking at setting up the network within Maharashtra only, the scope for growth is limited. The company would have to enter into separate alliances to venture into other states where it may not meet with a similar kind of success.

The only flip side is that because of the pace with which technology is growing obsolescent, such a huge investment is likely to be upstaged with some new development in the telecom field, which may render such an investment to be wasted. On the other hand such a probability is unlikely because of the fact that only recently optic fibre based cables have evolved as a cheaper and better alternative to jelly-filled cables.

Market View:
Global Tele has been rated as a ‘BUY’ by analysts mainly on account of the company’s attempts to reorient itself into a solution provider in areas of telecom, software and e-commerce.

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