Is AT&T trying to break into India's cell phone market?

AT&T is reportedly looking to get a piece of the mobile market in India, according to a story in The Wall Street Journal.

The newspaper reported late last week that AT&T, the second largest cell phone operator in the U.S., is in preliminary talks with Reliance Communications, India's second largest wireless phone company. AT&T on Monday denied it is in discussions with the Indian carrier.

The Wall Street Journal cited unnamed sources and noted the talks are still in the early stages. Reliance officials said that its board had approved the sale of up to a 26 percent equity stake in the firm to raise cash for debt reduction and network upgrades, the Journal reported.

The Indian company has supposedly been in talks with other companies, such as Etisalat Emirates Telecommunications, which is based in Abu Dhabi. Now the company is supposedly looking to attract other suitors, namely U.S. carrier AT&T.

AT&T has been looking to expand internationally as the cell phone market in the U.S. becomes saturated. More than 90 percent of Americans own a cell phone. And even though AT&T is still adding new cell phone subscribers, thanks in large part to the popular Apple iPhone, growth is slowing. During the first quarter of 2010, AT&T added only 512,000 new customers. This is compared to a net addition of 897,000 new subscribers during the same quarter a year ago.

AT&T has been pushing more customers to sign up for more lucrative data services. And the company is trying to expand its business by adding new devices to its wireless network, such as the Apple iPad.

While growth is expected to continue in the U.S. for data and wireless Internet, it's expected to explode in countries, such as India where there is little traditional landline phone penetration. In India and other developing countries, wireless will likely be how most people access the Internet.

But the Indian cell phone market is fraught with challenges. A complex tax system and merger regulations, make it difficult for foreign companies, the Wall Street Journal said. What's more the market is crowded with six significant players, which has kept pressure on profit margins. In fact in the last year, most major cell phone carriers in India have grown subscribers by 50 percent or more compared to a year ago, but revenues have declined. To cope with cut-throat pricing while still needing cash to continue building out its network, Reliance Reliance has racked up about $6.2 billion of debt.

Other foreign mobile-phone companies' attempts at cracking the cell phone market in India have not been very successful. In 2007, Vodafone, the world's largest cell-phone carrier, took a stake in India's third largest carrier. Recently, the company took a $3.4 billion impairment charge on the $11 billion investment.

Craig Moffett, a Wall Street analyst with Sanford Bernstein, cited Vodafone's issues in an e-mail critical of AT&T's "talks" with Reliance.

"Unfortunately, India's wireless market is structurally deeply flawed," he said. "Our European colleague, Robin Bienenstock, explored India in depth in a report in February entitled 'Vodafone: Deep Dive on India, a Market in Hyper Speed.' After reading it, one might reasonably ask 'what's the attraction?'"