Tata’s tor­tured tryst with tele­com

Mint Asia ST - - News - SUN­DEEP KHANNA

De­spite

be­ing one of the ear­li­est en­trants into the space, the Tata group’s long en­gage­ment with In­dia’s tele­com mar­ket has come to naught with a mea­sured exit for Tata Te­le­ser­vices Ltd on the cards. Af­ter in­vest­ing bil­lions of dol­lars over the last 22 years, mount­ing losses (its debt bur­den is a whop­ping Rs31,000 crore on top of spi­ral­ing losses) and the in­abil­ity to grab sig­nif­i­cant mar­ket share have forced the group to cut its losses and look for a sale of its as­sets.

The Tata group’s ini­tial foray in the busi­ness was aus­pi­cious. In 1995, Tata Cel­lu­lar (TCL), the group’s first en­tity in the busi­ness, won the li­cence to start mo­bile ser­vices in Andhra Pradesh. Soon af­ter, in 1997, Tata Te­le­ser­vices (TTSL) suc­cess­fully bid for the ba­sic ser­vices li­cence in Andhra Pradesh. TCL later merged with Birla AT&T Ltd to ex­pand its cov­er­age to four cir­cles, while the newly cre­ated en­tity Birla Tata AT&T (BTAL) in turn later merged with BPL Mo­bile in 2001, which at the time was one of the mar­ket lead­ers in its op­er­at­ing cir­cles.

Per­haps the ge­n­e­sis of this sto­ried group’s in­abil­ity to crack the tele­com mar­ket puz­zle lay in an in­cor­rect as­sess­ment of the po­ten­tial of the In­dian mar­ket and the dis­rup­tion cel­lu­lar tech­nol­ogy would cause. In Fe­bru­ary 2002, the group be­lieved that “with fixed-line tele­den­sity in In­dia be­ing at a very low 4%, ab­so­lute growth in fixed-line ser­vices will lead ad­di­tions in mo­bile sub­scribers over the next 10 years”.

That year, the govern­ment opened most parts of the tele­com busi­ness in­clud­ing long dis­tance and in­ter­net ser­vices to all com­ers. The Tata group, along with Re­liance In­fo­comm Ltd and Bharti Televen­tures Ltd an­nounced it would strad­dle all th­ese ar­eas to emerge as an in­te­grated tele­com com­pany. To that end, it went on an ac­qui­si­tion and part­ner­ing spree.

In 2002, it ac­quired Videsh San­char Nigam Ltd (VSNL), which be­came Tata Com­mu­ni­ca­tions Ltd, for a 100% share of the lu­cra­tive in­ter­na­tional long dis­tance busi­ness, on the as­sump­tion that over­seas calls to and from In­dia would be the most lu­cra­tive end of the ser­vices mar­ket. Si­mul­ta­ne­ously, it bought sev­eral over­seas com­pa­nies, in­clud­ing Tyco Global Net­work and Tele­globe, in an ef­fort to ac­quire a global cus­tomer base. It wasn’t very un­usual in those early years of the 21st cen­tury for emerg­ing In­dian tele­com play­ers to cast an eye on mar­kets abroad. Bharti signed a joint ven­ture with Sing­tel for a sub­ma­rine cable com­pany i2icn in 2000, while in 2003 Re­liance Com­mu­ni­ca­tions Ltd ac­quired Flag Tele­com. But in the process, Tata seemed to take its eye off the do­mes­tic mar­ket, which was now poised for a take­off.

Dis­tracted per­haps by the multi-bil­lion dol­lar ac­qui­si­tions of Corus Group Plc in steel and the Jaguar Land Rover busi­ness in au­to­mo­biles, the group seemed to have made the wrong calls in tele­com. It erred griev­ously in choos­ing the CDMA route for its mo­bile back end and only adopted the now ubiq­ui­tous Global Sys­tem for Mo­biles (GSM) tech­nol­ogy in 2008 when it tied up with NTT Do­como Inc. By then it was too late. Bharti Air­tel and Voda­fone (which bought a ma­jor­ity stake in Hutchi­son Es­sar Ltd in May 2007) were al­ready well-en­trenched as the mar­ket lead­ers and the busi­ness had changed in­ex­orably.

From there on, it has been a bat­tle for sur­vival. In Novem­ber 2008, NTT Do­como of Ja­pan picked up a 26% eq­uity stake in Tata Indi­com, a sub­sidiary of Tata Te­le­ser­vices, for about Rs130.7 bil­lion ($2 bil­lion). Six years later, the Ja­panese com­pany ex­ited the ven­ture sell­ing its stake in Tata Indi­com to Tata Te­le­ser­vices af­ter suf­fer­ing a mas­sive $1.3 bil­lion loss. In between there was the Tata Te­le­ser­vices joint ven­ture for mar­ket­ing mo­bile con­nec­tions with Richard Bran­son’s Virgin Mo­bile in 2008 which came to a close three years later with the Tatas buy­ing out Virgin’s 50% stake. De­spite th­ese signs that the busi­ness wasn’t go­ing any­where, the group left the de­ci­sion about ex­it­ing, hang­ing. That was un­usual, for in the past it had al­ways been very sure and ruth­less about chop­ping any busi­ness that wasn’t yield­ing re­sults. In 2000 when it di­vested its re­main­ing stake in the As­so­ci­ated Ce­ment Com­pa­nies Ltd, it was an ac­knowl­edge­ment that it could not be a mar­ket leader in ce­ment and there­fore it was bet­ter to get out than set­tle for a low rank­ing. By con­trast, even in July 2016, the group was still in­vest­ing in its loss-mak­ing sub­sidiary Tata Te­le­ser­vices Ma­ha­rash­tra Ltd (TTML).

The mud­dled think­ing that has sur­rounded the busi­ness over the years is per­haps best cap­tured by its al­most com­i­cal mé­nage à trios with AT&T and the Birla Group to form Bir­laTATA-AT&T (Batata) in 2001. In 2006, the two In­dian gi­ants dis­agreed mildly over who would buy the stake that Cin­gu­lar Wire­less, the At&t-owned mo­bile com­pany, had in this pe­cu­liar beast. Tata fi­nally ex­ited in favour of Birla, and Idea Cel­lu­lar Ltd, the com­pany they had jointly formed, went on to be­come the third largest over the next 10 years, leav­ing the Tata tele­com busi­ness way be­hind. The can­cel­la­tion of three of its li­cences by the Supreme Court in 2012 as part of the 2G scam clean-up came as a fi­nal blow to the floun­der­ing busi­ness. Overnight its sub­scriber base shrank and from there on it was a race to the bot­tom. As chair­man N. Chan­drasekaran now seeks a fi­nal so­lu­tion to its tele­com tra­vails, there will be very few tears shed about the dis­ap­pear­ance of the Tata brand from a busi­ness that bears lit­tle re­sem­blance to the one the group first en­tered over two decades ago.

Sun­deep Khanna is a con­sult­ing edi­tor at Mint and over­sees the news­room’s cor­po­rate cov­er­age. The Cor­po­rate Out­sider will look at cur­rent is­sues and trends in the cor­po­rate sec­tor ev­ery week.

ABHIJIT BHATLEKAR/MINT

Mea­sured exit: As chair­man N. Chan­drasekaran seeks a fi­nal so­lu­tion to Tata’s tele­com tra­vails, there will be few tears shed about the dis­ap­pear­ance of the Tata Te­le­ser­vices brand.

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