Telecom sector to grow at decent rate over long term: Aberdeen Asset Management

Peter Elston, Strategist, Aberdeen Asset Management spoke to ET Now on telecom sector.

Just wondering what's your view on the telecom space in India because what you said for Reliance in terms of heavy cash outflow also probably holds good for telecom companies with the 3G auctions coming up and also some bit of acquisition opportunities that at least one or more of them have targeted.

The reason I am asking this to is also because we had JP Morgan come and say that its better for telecom companies to give off their excess cash as dividend as oppose to bidding for 3G you subscribe to their view?

Well that's a very interesting view and we don't have to go back too far in history to be reminded that what happened in Europe 10 years ago with respect to the bidding for licences which ate up massive amounts of companies free cash flow on which they didn't actually get a very good return.

It took years for certain companies to recover from that and in many respects the telecom industry is one in which you need this very large and continual re-investment it cannot be quite lumpy when you get these jumps in the technology.

Regulatory environment also has a key impact if you have a regulatory environment such as Malaysia where government do not allow competition to get out of control then that could be a best of environment for companies to be able to produce good profitability.

In India, I suspect government has been little bit too greedy in terms of trying to generate more revenue and that's resulted in far too much competition amongst the main players which is profitability but it's a sector which over the long term is going to grow at a very decent rate. India's penetration rate although has been growing very strongly its still very low.