How Tatas made the wrong calls in tele­com

Business Standard - - COMPANIES - SURAJEET DAS GUPTA

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

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