Mumbai: Tata Teleservices Ltd (TTSL), India’s sixth ranked mobile phone services company by customers, is working on an agreement to sell a 26% stake to NTT DoCoMo Inc., Japan’s biggest mobile phone operator, for nearly $2.5 billion (Rs12,100 crore), two people familiar with the development said.
Law firms representing both companies are working on the deal that potentially values the unlisted Tata unit, which runs phone networks on a standard called code division multiple access (CDMA), at about $9.61 billion. If the deal closes at that valuation, it would value TTSL at about one-third of the $28 billion market value of Bharti Airtel Ltd, India’s top ranked mobile phone services firm by customers.
TTSL has about 29 million mobile phone customers, while Airtel has some 77.5 million at the end of September. If the deal valuation holds, NTT is valuing each current TTSL customer at about $331.38.
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Under the proposed deal, 20% of the NTT stake will be in fresh capital, adding $1.92 billion to the loss-making TTSL’s coffers. The remaining 6% will be sold by Tata group companies, such as Tata Power Co. Ltd, which hold stakes in the phone firm. Mint couldn’t immediately ascertain which other Tata firms would sell to NTT.
If the deal goes through, it will be the first major investment by a Japanese phone firm in India.
One person with knowledge of the proposed deal said TTSL plans to use the NTT investment to expand its services across India on networks running on the global system for mobile communications (GSM) standard. In August, Anil Sardana, TTSL’s managing director, had said the company would invest Rs6,000 crore on a GSM-based network and some Rs2,000 crore to strengthen its CDMA network.
Three in four of India’s some 300 million mobile phone customers are serviced on GSM networks, which is more widely used worldwide too. India, which is currently the world’s fastest growing mobile phone market in terms of new subscribers, adds 8-10 million new users a month.
With a rule change late last year that phone firms running networks on one standard could switch to another, CDMA firms such as TTSL and Reliance Communications Ltd (RCom), India’s second largest mobile phone services firm by customers, are finalizing plans to launch GSM networks.
“As a policy in the Tata group, we do not comment on speculative queries,” wrote a spokesperson for TTSL. A spokesman for NTT wrote in an email: “Regarding what you have requested, there is nothing we can disclose at this moment.”
Investment bank Lazard and Co. is advising the Tata firm while NTT has taken advise from JPMorgan.
Mint first reported on 13 October that TTSL was writing off Rs5,141 crore in losses and unabsorbed depreciation, a move that was approved by an extraordinary general meeting of shareholders on 8 September. The write-off, the largest ever by an Indian firm, will potentially help it achieve profitability faster and also clears the decks for the potential NTT investment.
The NTT management has recently said it is looking to expand overseas.
“We will also work aggressively in the international domain and seek alliances with mobile-related peripheral businesses and other industries,” Ryuji Yamada, NTT’s president and chief executive officer, is quoted as saying in an interview available on NTT’s website. “Recently, we invested in a mobile operator based in Bangladesh in view of its future growth potential. Going forward, we will study investments outside Japan if proper opportunities arise.”
NTT commands at least half of Japan’s mobile phone market with 53.8 million customers and has acquired minority stakes in phone firms outside Japan. It has a 24.1% stake in Hutchison Telecommunications International Ltd, which runs mobile and fixed line services in Hong Kong as also Indonesia, Israel, Vietnam, Macau, Thailand and Sri Lanka. The Japanese phone firm also owns 4.71% in FET (Taiwan), 10.3% in KT Freetel of South Korea, 16.5% in U-Mobile in Malaysia and has planned a 30% stake in TM International in Bangladesh.
The biggest attraction for TTSL to ink a deal with NTT is the Japanese firm’s experience in serving customers with high speed data offerings, or third generation (3G) phone services, an analyst said.
“It will be a great learning from NTT DoCoMo—from Japan—where 3G is success,” said Sourabh Kaushal, analyst with consultancy firm Frost and Sullivan. “Having a foreign partner for 3G is very important. Bharti (Airtel) has SingTel, Vodafone Essar has Vodafone...NTT will help Tata Tele understand 3G better and bring in experience.”
RCom has already started testing its GSM networks in seven cities, including Mumbai and Delhi, and plans to expand to other states.
TTSL reported a Rs9,177 crore loss in fiscal 2008, which included a carried forward loss of Rs7,363.41 crore, on account of high capital expenditure to connect customers. But the firm managed to cut down annual losses to Rs1,813.76 crore in the year ended 31 March from Rs2,062.52 crore in the previous year.
R. Jai Krishna in New Delhi contributed to this story.