Mumbai: Tata Communications Ltd, formerly Videsh Sanchar Nigam Ltd, is in discussions with Temasek Holdings Pvt. Ltd for a possible stake sale in its retail and broadband business, a person familiar with the development said.
“Temasek is leading the race for a stake in the new retail business of Tata Communications, which is planning to invest at least $1 billion (around Rs4,000 crore) in the next three years to strengthen its broadband services (business). The company (Tata Communications) will continue to hold the majority stake in the retail business venture and Temasek will be a financial investor,” added the person who did not wish to be identified.
A spokesperson for Tata Communications (Tata Com) declined to comment and executives at Temasek Holdings’ Indian arm could not be reached over the weekend. The company did not respond to an email query.
INTERNET CHAT (Graphic)
Tata Communications operates in a range of businesses, including long-distance telephony and Internet services for both business and retail consumers. In March 2007, the company had announced its decision to spin off its so-called retail business spanning broadband and Internet services. Shareholders of the company have already approved this and Tata Communications is in the process of spinning off the business.
Several private equity firms have held discussions with Tata Communications for a stake in the business. “Tata Communications and Temasek are currently working out the structure of the deal and should conclude it shortly,” the person said.
Temasek is the investment arm of the Singapore government and manages investments of more than $100 billion, largely in Asia. The company has an investment of more than $3 billion in India and holds stakes in companies such as ICICI OneSource and Tata Teleservies Ltd.
According to the Telecom Regulatory Authority of India, or Trai, India had 3.13 million broadband connections at the end of December 2007. The regulator does not provide a break-up of the number between business and retail customers. Unlike most Western countries, where broadband refers to a minimum download speed of 2mbps, in India, a speed of 256kbps or more is considered broadband.
However, many companies are convinced that there is significant potential for growth and are investing in Wi-Fi (or wireless fidelity, which provides high-speed Internet access in a limited area) and Wimax (a sort of Wi-Fi on steroids, which can cover almost an entire city) services. These companies, including Tata Communications and Sify Technologies Ltd, are convinced that wireless technologies are the best way to serve India because of the high costs involved in creating so-called wireline infrastructure in the large country.
Tata Communications has launched Wimax services for business customers in Bangalore and announced its plans to extend this network to about 120 cities for business customers and five cities for retail customers by 31 March.
“Hiving off the retail business division of broadband services of Tata Communications will help the company get a clear focus in the retail business as there are several constraints in getting last-mile connectivity. Since Tata Communications is targeting a mass market for its Wimax product offerings covering secondary cities, an investor and a separate company will make lot of sense,” said an analyst with a domestic brokerage who asked not to be identified because he is not authorized to speak to the media.
Last-mile access refers to providing services to individual homes.
The person familiar with the development said the stake sale was in line with Tata Communications’ strategy of unlocking value in the firm. Tata Communications has already sold 10% stake in its wholly owned subsidiary VSNL Lanka Ltd to Sunshine Holdings Plc., a Sri Lankan conglomerate.
“Tata Communications is betting big on broadband business. An investor of this kind would also bring credibility to the company and its strategy,” he added.
“The company will invest around $1 billion in the submarine cable and Wimax businesses, and another $1 billion for network expansion, funded through internal accruals,” Srinivasa Addepalli, senior vice-president (corporate strategy), Tata Communications, had said last month.
Rana Rosen contributed to this story.