Privately held next-generation convergence service provider Prime Telesystems Ltd (PrimeTel) is looking to raise Rs 300 crore through an institutional placement of shares as the first leg of a plan under which some of its existing angel investors will part-exit, ahead of a proposed launch of services in India.

“The proceeds will be used for launching convergence services in India under the proposed unified telecom licencing framework of the government of India,” the company spokesman told VCCircle. He added that the firm would restructure its equity to conform to the FDI norms for telecom licence holders.

“One of the objectives of the current round is to establish a hook for equity pricing in order to ensure the equity restructuring. At no stage is the company going to sacrifice its ‘Indian’ tag.  We target an Indian ownership in excess of 75 per cent, prior to the launch of services,” he told VCCircle.

The company’s global CEO Shalin Dehbur, who operates from a development centre in Israel, is a professional of Indian origin and holds an Indian passport.

PrimeTel will apply for a licence on the basis of the new unified licence terms (that involves separation of the licence and the spectrum) being finalised by the government. According to the company spokesman, there is some regulatory uncertainty at this stage about PrimeTel’s ability to offer telephony, which it may need to carry out through an MVNO tie-up.

However, PrimeTel has no plans for an IPO in the near future. “Core technology development is a tedious, time-consuming process and may not be a suitable activity for a listed company. Secrecy is a critical success factor for a disruptive innovator and the listed company model is not suitable for this kind of enterprise,” the spokesman said.

Backers & Competition

The firm which was started nearly two decades ago by academician and technocrat B Nag, along with a group of his ex-students from the IIT (Bombay), is backed by various early stage investors. Among them are Intel Capital and SCSI Capital, a China-based Asian venture capital firm, founded by a British professor and focused on opportunities in the digital space.

PrimeTel is looking at a two-tiered share sale to institutional investors which includes a primary or fresh share sale that will bring money into the company, besides a small secondary sale by the angel investor group which had funded the venture nearly 15 years ago. Among them is an individual investor R K Jerath, an octogenarian who intends to exit so as to divert funds to his charity/religious activities. Overall, the sale of shares to institutional investors will constitute 48 per cent of the company’s equity.

Some of the current institutional investors are looking for an exit because they have been invested for more 10 years and their fund life is getting over. For instance, Intel Capital and SCSI Capital, as well as Citicorp, are believed to have invested in the firm in 2001. The angel investors are expected to sell around three-fourth of their holding.

After the current placement, majority stake will be held by the financial investors. The founders have full management control and significant stock options.

Till date, PrimeTel has raised six rounds of debt and equity. Funding has been done in the parent company, as well as in downstream overseas subsidiaries. In addition, the company has an active strategic investment programme of its own where other venture capital funds are partners.

Besides the money it is now raising, the company will also require a large quantum (several times the current funding programme) to roll out its services.

PrimeTel grew as a private sector telecommunications research & development company and one of the early firms focusing on convergence services, using packetised technologies or IP technologies. Now, it is looking to roll out its triple-play or a combination of audio-video-voice services in India, based on its proprietary technology HDVSL.

According to its website, HDVSL is a convergence technology which is built around the HDVSL standard, uses special high power HDVSL compound semiconductors and involves a new network architecture.

HDVSL services are likely to be launched all over India within a year of the company getting appropriate licences from the government.

PrimeTel will be up against Tier I telcos like Airtel, Vodafone, Reliance, MTNL, BSNL and Idea, besides regional telcos and DTH operators such as Dish TV, Tata Sky and Airtel DTH. Its entry comes at an interesting time as the country’s largest company Reliance Industries is also eyeing this space.

The Early Connection

PrimeTel has the right pedigree though, as it has been involved with implementation of government projects such as the first defence satellite network, satellite TV jamming project and the national internet backbone. It also helped design India’s first cellular network for Sterling Cellular in Delhi Circle.

The company was also involved in the macro network and functionality design for the landline network in Mumbai, and worked for ICO Global in the mid-90s in the area of global satellite telephony. PrimeTel became India’s first EPZ (export processing zone) company in the R&D sector.

The company received financial support from a government-controlled Indian financial institution in 1997 and set up a large design centre. The following year, it started work on the HDVSL technology, parallel to the emergence of the internet as the globally preferred technology for convergence.

It built its first completely dumb home computer for network and sentient computing applications, and implemented the first version of HDVSL technology for use over legacy cable networks, using an architecture which was accepted by ITU in 2008 as the standard.

A little over eight years ago, PrimeTel commenced operations in Israel for packetised real-time applications and in China, for low-cost wireless applications. It also launched its strategic investment programme to invest in entities engaged in fundamental research in packetised communication technologies.

Over the past five years, PrimeTel commercialised its HDVSL-ready rich media softswitches in four countries. HDVSL was field-tested on a Tier I telco network in India. It is now reinventing itself as a mainstay telco with the intent to deploy an end-to-end HDVSL network and plans to graduate into a Tier I telco by 2012-13.

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