Tata Tele in Early Talks to Join RCom-Air­cel-MTS Com­bine

Move may cre­ate a strong No. 3 telco; talks may or may not re­sult in a merger

The Economic Times - - Front Page - Dev­ina.Sen­gupta@ times­group.com

Tele­com Churn

deal works out, RComTata-Air­cel-MTS com­bine to have around users, around rev­enue mar­ket share and to­tal spec­trum of Mum­bai: Reliance Com­mu­ni­ca­tions and the Tata Group are be­lieved to have ini­ti­ated talks to ex­plore a pos­si­ble union that could see Tata Te­le­ser­vices join forces with the merged RCom-Air­cel and MTS, per­sons fa­mil­iar with the mat­ter told ET.

Such a move could cre­ate a strong No. 3 telco be­hind the pro­posed Voda­fone-Idea com­bine and Bharti Air­tel, amid in­tense com­pe­ti­tion trig­gered by Reliance Jio’s en­try.

Anil Am­bani, chair­man of the Reliance Group, is be­lieved to have ap­proached N Chan­drasekaran, the newly anointed Tata Sons chair­man to dis­cuss the mat­ter, said peo­ple aware of the de­vel­op­ment.

“Noth­ing has been fi­nalised yet,” one of them said, not­ing that there are some ob­sta­cles such as Tata Tele’s debt of about .₹ 30,000 crore. The le­gal is­sue re­gard­ing NTT Do­como’s exit from Tata Tele also needs to be re­solved, the per­son said.

Tata Tele, Tata Sons and RCom did not re­spond to emails sent by ET. State Bank of In­dia, a key lender to RCom, Air­cel and Tata Te­le­ser­vices, is said to have long been push­ing for con­sol­i­da­tion. Tata Tele’s debt will be a big fac­tor in any talks with the RComAir­cel com­bine, which has debt of a sim­i­lar amount, ex­perts said. Tata Sons is look­ing to clean up the telco’s books. ET re­ported last week that the Tata hold­ing com­pany plans to in­fuse .₹ 10,000 crore to clean up the tele­com unit’s bal­ance sheet.

Tata Tele has also taken ap­proval to dou­ble its au­tho­rised cap­i­tal to .₹ 40,000 crore, in­di­cat­ing fur­ther eq­uity in­fu­sion, ex­perts said. How­ever, Tata Group ex­ec­u­tives said the firm al­ready has a board res­o­lu­tion for a sale of the busi­ness or a grad­ual shut­down of op­er­a­tions. In the event of a merger, the Tata Group is un­likely to take any eq­uity, they added.

The frag­mented but in­tensely com­pet­i­tive tele­com mar­ket, is on the brink of ma­jor con­sol­i­da­tion as the in­tense price war trig­gered by Reliance Jio has left most tel­cos bleed­ing. “It does not make sense to stay in an in­dus­try if you are not among the top three,” said one of the per­sons cited above.

Voda­fone and Idea Cel­lu­lar, the sec­ond and third-largest tel­cos, are ex-

plor­ing a merger. Fringe player Nor­way’s Te­lenor is look­ing to exit and has ini­ti­ated talks to ei­ther join the RCom-Air­cel com­bine or be ac­quired by Air­tel. Tata Tele, with 53 mil­lion users, cur­rently ranks ninth out of 12 tel­cos by sub­scribers. It had been strug­gling even be­fore Jio’s en­try, post­ing losses and run­ning up debt. It has been look­ing for buy­ers for a while, but talks with Voda­fone had been stymied due to the debt.

If it joins RCom, Air­cel and MTS, then the com­bine will have around 260 mil­lion sub­scribers, clos­ing in on Air­tel’s 266 mil­lion users, as per reg­u­la­tory data as on De­cem­ber 31. Voda­fone and Idea have 205 mil­lion and 190 mil­lion sub­scribers, re­spec­tively, adding up to 395 mil­lion in case of a merger.

A Tata Tele-RCom-Air­cel-MTS com­bine will have rev­enue mar­ket share of over 18% com­pared with 31% for Air­tel and 42% (23% and 19%, re­spec­tively) for Voda­fone-Idea, ac­cord­ing to Credit Suisse. Jio had over 72 mil­lion users as of De­cem­ber end, but no rev­enue mar­ket share as it hasn’t started charg­ing for its ser­vices. The Tatas have 800 MHz band­width in19 cir­cles, which can be used to of­fer 4G, but only after pay­ing the mar­ket price to the gov­ern­ment since it wasn’t won through auc­tions.

While the com­bined en­tity won’t be breach­ing any spec­trum hold­ing lim­its, it may “choose to sur­ren­der some or all of Tata Tele’s 800 MHz air­waves as RCom on its own, and through its shar­ing tie-up with Jio, al­ready has a lot of those 4G air­waves and may not want to pay the ad­di­tional amount to the gov­ern­ment”, said one of the peo­ple fa­mil­iar with the mat­ter.

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