The troubles with Tata’s telecom business
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New Delhi: The fire sale or shutdown of Tata’s telecom business (excluding the payout to NTT DoCoMo) would cost around $4-5 billion, according to a startling revelation by ousted Tata Sons chairman Cyrus Mistry.
The amount is excluding the more than $1 billion payout expected to be made out to DoCoMo.
“The telecom business has been continuously haemorrhaging,” Mistry said in a letter to the Tata Sons board.
A Tata Trusts and Tata Sons spokesperson declined to comment on Mistry’s letter.
Mistry’s observation is spot on. The business never made sense for Tatas.
Tata Teleservices Ltd has become a marginal player in India’s hyper-competitive telecom sector.
Its erstwhile partner DoCoMo has exited the market and the two companies are embroiled in a controversial litigation over a payback that can’t be made because it is in violation of Indian law.
The Tata group has so far invested more than Rs50,000 crore in the telecom business. Tata Teleservices (TTSL) and the listed Tata Teleservices (Maharashtra) (TTML) had a total debt of Rs30,140 crore as of 31 March.
Tata Communications, the group’s third group telecom company, is a shadow of the government company it was born from, Videsh Sanchar Nigam Ltd.
The Tata group’s telecom play started as a three-way venture with the Birlas and AT&T. Later, the partners decided to go their separate ways. The Tatas, who had a licence to offer fixed-line telephony services, were content to follow Reliance Incofomm’s and subsequently Reliance Communication’s playbook, first effecting a back-door entry into mobile services on the CDMA platform in 2001, and then moving to offering GSM services in 2008.
Things looked up when Japanese company NTT DoCoMo made its $2.6-billion entry into India by picking up a 26.5% stake in Tata Teleservices in 2009.
But the so-called 2G scam and hyper-competition took their toll on the business. In 2014, DoCoMo decided to exit India—at a substantial loss.