How Tatas made the wrong calls in telecom
The Tatas’ tryst with telecom has been mired in mis-steps, wrong technology choices and bets that boomeranged.
To begin with, the Tatas placed their telecom bets between GSM and CDMA, the technology pushed by Qualcomm that promised efficient use of spectrum combined with the possibility of high-speed data. That would have been alright had it not been for the mistake that analysts say the Tatas made in 2006 when it decided to pull out of GSM.
The Tatas had an earlier joint venture with the Aditya Birla group and AT&T, famously known as BATATA. AT&T was the first to walk out of the venture in 2005 by selling its 30 per cent stake. The two Indian partners would soon enter a messy battle the genesis of which was that the Tatas, who had another telecom company in Tata Teleservices, held more than 10 per cent in the joint venture, which was now called Idea Cellular. This was something that was not allowed under the rules.
The Birlas asked the government to intercede in removing the Tatas from Idea Cellular, alleging that they were not allowing the company to grow. The Tatas were left with no choice but to walk out of the joint venture, by then the fifth-largest player, by selling their 48.12 per cent stake to their estranged partners. However, they did this after a bitter legal battle that involved sending the Birlas notices for various breaches in the shareholders’ agreement.
Many say that if the Tatas had handled their relationship with their partners better, they would have been a force to reckon with in the GSM space. They could have also wound down their CDMA business. As part of Idea Cellular, they would have become the largest GSM player in the country. But the problem was that the Tata top management had by then bet the future on CDMA, a decision the group would come to regret.
Globally, CDMA was receding and even Qualcomm was moving towards new technologies. So, when in 2008, the government allowed “dual technology” — CDMA players would also receive GSM spectrum without separate licences — Tata Teleservices returned to the GSM fold by acquiring spectrum. This time, the Tatas roped in Japanese giant NTT DoCoMo as joint venture partner.
To be fair, in its second innings, Tata Teleservices played an aggressive pricing game. It started charging calls in seconds instead of the prevailing system of charging by the minute. Customers’ bills fell by 12-15 per cent, forcing every other telecom company to follow suit.
This, however, squeezed the industry’s margins in a market that suddenly had 9-10 players with new licences being issued to Telenor, Sistema and Videocon. It also dented the profitability of Tata-DoCoMo.
The Japanese partner had brought in around ~14,000 crore as well as technology. NTT DoCoMo was by then one of the leaders in 3G and was thinking of moving out of 2G in Japan. It was also readying to invest more in its Indian venture but the 2G scam erupted in November 2010 and, like all other telecom players, the Tatas were dragged in.
After that, the Tatas seemed to have lost their way. Their investments declined to a trickle, they sought ways to cut costs as losses mounted, they reduced the number of cellular towers and they lost market share. There was a clear difference of perception between the NTT DoCoMo and Tata executives on technology and the speed at which the joint venture needed to move. Various aborted attempts to sell the business were made, once to Aircel and then to Vodafone.
Despite launching 3G services in 2010, ahead of the others, Tata Teleservices was not able to leverage its first-mover advantage, according to analysts. It was wary of buying spectrum in auctions as NTT DoCoMo mounted pressure over its exit. Even that was not smooth with both sides battling it out in court till eventually the Japanese partner was paid off.
From a subscriber market share that climbed from just over nine per cent in December 2008 to 11.47 per cent in August 2010, Tata Teleservices saw its share fall to 7.7 per cent by February 2013. The decline has continued and based on July 2017 subscription data, Tata Teleservices now has a market share of 3.55 per cent.
Even though the Tata group pumped in money, Tata Teleservices’ losses did not ease. It was also completely unprepared to respond to the change in the market that moved from 3G to 4G LTE dramatically. Matters came to a head when Reliance Jio unveiled its aggressive pricing. It was time to call it a day.
From a subscriber market share that climbed from just over 9% in Dec 2008 to 11.5% in Aug 2010, TTSL saw its share fall to 7.7% by Feb 2013