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AT&T, Inc. (T - Analyst Report) is planning another attempt to re-enter the Indian telecom industry by buying out a 25% stake in Indian billionaire, Mukesh Ambani’s venture, Reliance Jio Infocomm Ltd. According to Bloomberg and elsewhere, AT&T’s planned buyout for approximately $3.5 billion will represent the largest foreign direct investment in that country. This would bring Reliance Jio’s market value to approximately $14 billion.

AT&T’s strategic move in the Indian market remains consistent with its Project Velocity-IP plans launched in Nov 2012, to invest approximately $14 billion. Given the competitive market conditions and saturation in the U.S. wireless industry, AT&T seeks a greener pasture by expanding wings in the Asian markets. 

This is not the first time that AT&T has forayed into the Indian sub-continent. Previously, it owned one-third equity in a telecom joint venture (now known as Idea Cellular) formed by the company and Indian corporate giants Tata Group and Aditya Birla Group. However, in 2004, AT&T exited the market by selling its 32.9% stake to the remaining stakeholders.

After almost a decade, the company is contemplating a new entry in India, where lucrative business opportunities are still prevalent thanks to rapid reforms. According to market reports, the country boosts the second largest wireless networks globally after China, based on subscribers. 

This sector has been the one of the largest in India to attract foreign direct investment. These investments contribute to its accelerated growth rate of 7% and business revenues of over $50 billion as per the 2010-2011 financial year records. 

Further, the telecom sector in India  remains one of the key business grounds for telecom giants like Vodafone Group PLC (VOD - Analyst Report) -- the second largest operator after China Mobile Limited (CHL - Snapshot Report) -- and the home turf of the world’s third largest telecom operator, Bharti Airtel Limited, based on subscribers.

However, the Indian telecom market is characterized by one of the lowest call tariffs in the world due to growing competitiveness with increased participation by some of the largest players in the global telecom space. This is resulting into high losses and diminishing profitability of the operators in India.

The sector however lacks proper infrastructure, which has restricted its growth to only 2G and 3G network deployments while developments in the LTE space is still lagging. Despite these drawbacks, AT&T’s interest in Reliance Jio could be the spectrum holding that lies with it through winning License for Broadband Wireless Access (BWA) Spectrum in 22 circles across India, auctioned by the government in 2010.

Given the acquisition of spectrum, the company aims at deploying LTE across the country, expanding wireless data services. The company plans to invest around Rupees 500 billion in LTE deployments and has collaborated with Spirit DSP to deliver voice and video calls over LTE.

We believe AT&T, with its investments in Reliance Jio would be able to catapult the Indian LTE market and gain significantly from the current market scenario of emerging prospects given a lower rate of penetration in the LTE space.

AT&T that operates with other network provider, Verizon Communications Inc. (VZ - Analyst Report) has a Zacks Rank #3 (Hold).

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