Oct. 10--NEW DELHI -- For the second time in as many years, India's Bharti Airtel and South Africa's MTN have failed in their bid to create the world's third-largest mobile services company with 200 million subscribers, revenues of US$20 billion and operations in 24 countries -- just behind China Mobile and Vodafone Group.

The deal-breaker was the South African government's concern that the country would lose MTN to a foreign player. Delhi could not meet Pretoria's demand for dual listing of MTN shares post-merger since India does not yet allow full capital account convertibility.

Official sources in New Delhi say a dual-listing structure would lead to huge tax losses to the government.

Another major hurdle was an amendment by the Securities and Exchange Board of India (SEBI) stating that any acquisition through American or Global depository receipts (ADRs and GDRs) with voting rights would trigger a mandatory 20 percent open offer above the 15 percent threshold. This upset the terms of the proposed deal as MTN sought to acquire 36 percent in Bharti through GDRs.

The South African government's pension fund, Public Investment Corporation, holds 21 percent in MTN and the government was under intense pressure to nix the deal on concerns that MTN's South African identity would be lost.

Sources said a dual-listed company (DLC) clause also would weaken the supervisory authority of SEBI as it would not be able to monitor overseas stock exchanges. MTN is currently listed on the Johannesburg Securities Exchange.

Last year, China Mobile and Vodafone also were reportedly close to striking a deal with MTN but nothing materialised. But Bharti is determined to replicate its staggering growth at home in other emerging markets, where scale is vital and penetration rates are low but rising fast. It is interesting to see why.

The company is the market leader in India, the world's fastest growing mobile market and the second largest after China. It has nearly a quarter of the country's total mobile subscriber base.

Telecom analysts and bankers say Bharti is keen to expand offshore as returns from the Indian market are likely to slow down in coming years. About 40 percent of India's 1.1 billion people have mobile phones and more than 10 million users are signing up every month.

Subscriber growth is expected to be slow eventually as more of the population gets phones.