Why Ratan Tata took charge of TataTele

Updated: Nov 19 2005, 05:30am hrs
When Ratan Tata took over as chairman of Tata Teleservices replacing Firdoze A Vandrewala on October 18, the news created more than the usual buzz. Mr Tata has reportedly been unhappy with the growth of Tata Teleservices vis a vis competitors and the industry. Tata Teleservices is leading one of the largest greenfield investments ever undertaken by the group, at least until work begins on its greenfield steel plants. The group is increasing its investments in telecom from Rs 20,000 crore (as on March 31, 2005) to Rs 30,000 crore over the next 16 months. Yet, its performance so far hasnt been able to match up to its peers in the business.

TTSL which began operations in 1999 as a fixed line operator in Andhra Pradesh (digital mobile services began in 2001) lags behind almost all major mobile operators in the country, including rival CDMA player Reliance Infocomms 11.7 million subscribers (figures not inclusive of Reliance GSM subscribers) as of October, 2005. Reliance began mobile operations in December, 2002. Consolidated figures with the Telecom Regulatory Authority of India show that Tata Teleservices has just 2.5% market share in Indias booming mobile market, which is growing at a scorching CAGR of 70%. The company is a poor ninth in the top 10 list of mobile operators, only better than the Mahanagar Telephone Nigam Limited (MTNL), which operates in Mumbai and Delhi as opposed to Tata Tele which has an all-India presence.

As on October 31, 2005, Tata Teleservices and Tata Teleservices (Maharashtra) Ltd (TTML), had a mobile subscriber base of 2.4 million, according to figures with the Association of Unified Telecom Service Providers of India (AUSPI). In comparison, the market leader Bharti has a subscriber base 14.74 million. Ironically, even Idea Cellular, which is present in fewer circles than Tata Teleservices and in which the Tata group recently took its stake up to 49%, has a larger subscriber base at 6.06 million.

Tatas are betting on telecom

Tata Teles performance is in contrast with the seriousness and ambition of the Tata group in telecom. Earlier this year, Tata Industries managing director Kishor Chaukar said that telecom would play a pivotal role in growth strategy of the Tatas.

The Tata ambitions in telecom can be gauged by the fact that they picked up 26% stake in Videsh Sanchar Nigam Ltd (VSNL) for Rs 2600 crore as far back as 2002, beating other bidders such as the Reliance group. In the same year, they also acquired the stake of Hughes Network Systems in Hughes Tele.com (now TTML) so they could offer telecom services in Maharashtra and Goa. More recently, in another indication of the groups commitment to be a big player in telecom space, the Tatas along with AV Birla group acquired Cingular Wireless 32.9% stake in Idea Cellular for Rs 1300 crore.

Integration will be future strategy

At first sight, the Tatas telecom play may look more like a tangled web with multiple companies having significant areas of overlap in services and operations. But these discrepancies are slowly being ironed out. TTML, for instance, could not offer the benefits of an all-India operator to its customers because its operations were limited to Maharashtra and Goa. It has now acquired a unified access licence which now allows it to offer these benefits in partnership with Tata Teleservices. Similarly, there are synergies with VSNL for internet services and long distance telephony.

As the group starts bringing the different pieces together and exploiting the synergies there are big gains to be made. All its telecom offerings have already been brought under one common band, Tata Indicom. And according to analysts, integration of back-office and sales and marketing operations are at an advanced stage. The companies will also share a common technology platform and have common sourcing from vendors. The background work of integration between the different entities has already started and is at an advanced stage. The direction will be consolidation, says Natraj S, head of research, Equitymaster.com.

Ratan Tatas role

With Ratan Tata taking over as chairman, consolidation of the different telecom businesses and co-ordination of their strategies and operations is expected to get more attention. What I forsee is that all the telcos under the Tata will eventually merge, says another analyst who has been following VSNL and TTML closely.

There are difficulties to a paper merger of the companies but not to consolidation and closer integration. Both VSNL and TTML are listed companies which make a merger difficult. Also, VSNL is an established player more focussed on global expansion, while Tata Teleservices is in the roll-out phase. For the customer it will be one interface. But the companies themselves wont merge at least for the next one year, says the analyst.

The integration strategy is also reflected in the board composition of Tata Teleservices and TTML. Apart from Mr Tata and Mr Chaukar, the Tata Tele board has Ishaat Hussain, R. Gopalakrishnan and J.J Irani from Tata Sons, and N Srinath, executive director of VSNL, and S Ramadorai, CEO and managing director of Tata Consultancy Services.

While it is too early to say what changes Mr Tata may bring in, the sentiment is bullish. Things should look better. But one shouldnt read too much into it, says another analyst pragmatically. When it comes to speculation, there are three lines of reasoning why Mr Tata has taken over as chairman. One, fuelled by the news of the SK Telecom deal having fallen through because of price differences, says the company is looking at investment from a foreign player. The second, says Mr Tata will look at integration. And the third, is that it shows Mr Tata is serious about telecom and one shouldnt read more into it.