Tata’s tortured tryst with telecom
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.
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.