Telecom’s New Epicenters: India and China
The acquisition of BCGI (Nasdaq) by Megasoft (Bombay Stock Exchange) for $65M that was announced yesterday continues the trend of Indian telecom software companies acquiring European and North American companies. Driving the trend is the growth of telecom, particularly wireless telecom services in emerging markets, particularly China and India. China now has 400M+ subscribers and India 150M+. Indian telecom technology companies are benefiting as suppliers to Indian wireless service providers. India is a highly competitive wireless market with five equal players generating profits at subscriber monthly revenue of $8/month (as compared to $50/month in the U.S.). Suppliers to wireless carriers have to provide their products and services at a third of the price they would garner in the U.S. or Europe. As a result these suppliers are very competitive globally. Additionally the capital markets in India—both venture and public markets—are frothy, so Indian telecom companies can readily raise cheap capital for acquisitions. Indian telecom companies can reduce the operating costs of any U.S. or European acquisition and thereby make money-losing companies such as BCGI immediately profitable. Also the Indian rupee has been appreciating against the U.S. dollar so acquisitions are becoming cheaper for India companies.
BCGI is yet another story of a Boston company that was not able to diversify its product and customer base in boom times and as a result was not able to survive setbacks in tougher times. BCGI provides outsourced prepaid billing services to U.S. wireless companies, and their largest customer, Verizon, decided to bring prepaid billing in house. Additionally, BCGI lost a patent case, and the resulting payouts crippled them financially.
I predict we will see many more acquisitions of Boston-area technology companies by Indian and Chinese companies (especially if China strengthens its currency). Sadly, this continues the trend of local companies selling out, first to Silicon Valley, and now to Bangalore and Beijing.