It did start on an optimistic note with the Tata Group’s telecom arm launching services based on GSM technology under the brand name Tata DoCoMo and initiating a call tariff war by introducing per-second billing at 1 paisa per second, almost half the then prevailing tariffs.
However, although the Indian telephony market grew from 300 million subscribers in 2008 to 900 million customers in 2013, Tata DoCoMo failed to accumulate momentum. On the contrary, the company, which is currently India’s sixth-largest operator by number of subscribers, has let go of more than 10 million customers since last year. The price war it had started also backfired. With new companies entering the field, the price war intensified, bringing down the average telecom rates across the industry, thereby reducing the margins of companies across the sector to unsustainable levels.
The dual technology player also got embroiled in the 2G spectrum scam when the Supreme Court, in February 2012, canceled 122 telecom licences granted to eight companies, citing fraud in the allocation of the mobile permits. Tata DoCoMo saw three of its licences canceled.
In April this year, Tata Teleservices also surrendered CDMA spectrum beyond 2.5 MHz in all circles, barring Mumbai and Delhi, to avoid paying a one-time charge of more than R1,152.7 crore. The company is struggling to pare its debt of around R23,000 crore. It even had to go for two rounds of rights issues to sustain capital expenditure.
DoCoMo, which had in 2012 planned to invest further to raise its stake in Tata Teleservices, has been forced to hold back. The Japanese partner seems to have learned its lesson the hard way — that growth in India is not always predictable or easy.
Faced with an oversaturated, ultra-competitive mobile market at home, DoCoMo bought the Tata stake in 2008 for around R13,000 crore as part of a strategy to look for a long-term growth abroad by buying minority stakes in telecom operators around Asia. DoCoMo, which has investments in 17 companies overseas, including eight telecom firms around Asia, is currently hunting for new overseas investments in the areas of mobile content and applications. DoCoMo holds a 24% stake in Hong Kong’s Hutchison Telecom, 5.9% of South Korea’s KT Corp, 4.7% of Taiwan’s FarEasTone Telecommunications, and 8.6% of Philippine Long Distance Telephone.
With its India venture not turning out to be “predictably” profitable, there have been strong market rumours that DoCoMo, which has the right to sell back its shares to the Tata Group, is currently looking at exit options. Under the shareholder agreement, DoCoMo can raise stake if its Indian partner (Tata Teleservices) meets certain performance parameters.
However, the agreement also allows Tata Teleservices to mandatorily buy out the entire stake of DoCoMo in 2014 if the Japanese company is unable to find a strategic investor or the Indian partner is unable to meet certain performance parameters which include achieving a target subscriber base and subscriber additions every year and attaining minimum revenues and profits for the company in specified time-frame, among others.
According to reports, Tata Teleservices and Russia’s Sistema JSFC are in exploratory talks for a merger in which NTT DoCoMo’s stake as well as part of the Tata Group’s holding would be transferred to Sistema.
However, despite the rumours, DoCoMo’s president Kaoru Kato, in an interview to The Wall Street Journal earlier this year, said, “we plan to hold on to our stake”. He had added “we are aware that growth may take time”.