Tatas’ telecom business seems to be going nowhere

When Japan’s NTT DoCoMo decided to invest in Tata Teleservices in 2008, the Indian telecom company seemed ready to start afresh, determined to put behind it the disappointment of its failed CDMA technology business. Like its only other big competitor Reliance Communications, Tata Teleservices had applied and secured a GSM telecom licence. The airwaves were allotted to the company in an auction in November 2008 and the deal was finally struck.

Japanese money — worth nearly Rs 14,400 crore — and technology — DoCoMo is Japan’s largest telecom operator — sent sentiment soaring as the company in 2009 became the first to launch per second billing. Telecom regulator Trai was then toying with making that mandatory, ending the per minute billing system that was prevalent then.

The move subdued call rates to half, and suddenly Tata Teleservices was a player to be reckoned with. Reliance Communications soon followed suit and other operators were also forced to join. Owing to the steep fall in rates, both Vodafone and Malaysia’s Axiata, which had invested in Idea Cellular, had to write off billions of dollars because their estimates of potential returns from the market had tanked.




In the months that followed, the Tata-DoCoMo came close to grabbing the fourth place in market share (the race then was to secure subscribers). That was as high as the company would ever go. The aggressive tariff wars severely dented the profitability of Tata-DoCoMo. It would take years to recover from the crushing losses and the company now lingers at sixth or seventh position in every market.

In late 2010, DoCoMo had agreed to invest another $1 billion in the company as part of a proportionate rights issue to further growth. The transaction was set to close in December 2010. But when the 2G scam broke in November 2010, the Japanese company developed cold feet.

A management change was forced in January 2011 and N Srinath was brought to replace Anil Sardana as CEO. Sardana had proven to be a dynamic leader. Much of Srinath’s effort and time were spent on finding synergies and pursue a merger between Tata Teleservices and Tata Communications, formerly VSNL, which the Tatas had acquired in 2002. DoCoMo had three board directors, a chief strategy officer and chief wireless officer, who were constantly at loggerheads with the Tataappointed management.

“Decision making became extremely conservative, and while others were still fighting to secure customers, Tata Teleservices started consolidation,” recalls a telecom executive who was with the company at the time.

“This is a pretty meritocratic business, it needs good and empowered business leaders,” says a contemporary CEO.

One of the first moves of the company under Srinath was to weed out less profitable customers. Both joint venture partners had by then stopped investing and Tata Teleservices started to report a decline in user base.

Unprofitable telecom towers were then shut down. By mid-2013, the company was looking to reduce as many as 8,000 towers and substitute them by sharing towers with Aircel and Reliance Communications.

At the time, a merger was on the anvil with Aircel. Teams from DoCoMo sat in the Malaysian office of Aircel’s promoter Ananda Krishnan. But AirCel withdrew from the deal because of a CBI case against Krishnan. The deal fell through. Vodafone too conducted a due diligence to buy Tata Teleservices, but talks collapsed because Vodafone also wanted the Tata Communications’ enterprise business.

Like every other player Tata Teleservices was affected by regulatory factors — licences were rolled back, or it had to tender back spectrum under protest pending a one-time charge by the department of telecom for use of excess spectrum. Yet, even when some of those wrongs were fixed, the company was no longer in a position to capitalise.

The company now talks of launching 4G services. It bought some spectrum in the 800MHz band in the last auction, but it was inadequate. Industry experts are unable to identify the company’s game plan for the future, which looks bleak.