New Delhi / Mumbai: NTT DoCoMo Inc., Japan’s largest phone firm, has bought a 26% stake in Tata Teleservices Ltd (TTSL) by paying $2.7 billion (Rs13,176 crore), becoming the sixth global phone firm to invest in the Indian mobile phone services market in the last 18 months.
The deal gives DoCoMo, as the firm is better known, a toehold in what is the world’s second largest and fastest growing mobile phone services market in quick succession behind Telenor ASA, Emirates Telecommunications Corp. (Etisalat), Telekom Malaysia Bhd and AFK Sistema, all of which bought stakes in Indian phone partners.
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Vodafone Group Plc., the world’s biggest mobile phone services firm, started the trend in May last year when it closed a two-thirds buyout of Hutchison Essar Ltd (now named Vodafone Essar) for $10.9 billion.
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The acquisition will be DoCoMo’s largest in around eight years. DoCoMo is resuming expansion overseas after failed investments, including those in Hutchison 3G UK Holdings, forced it to write off $15 billion between 2001 and 2004.
DoCoMo, which will make an open offer to buy 20% in Tata Teleservices Maharashtra Ltd, a unit of TTSL, did not rule out the possibility of taking a majority stake in the parent in the future.
“The company has shifted to developing countries with room for further growth. It’s a good strategy,” said Shinji Moriyuki, an analyst at Mitsubishi UFJ Financial Group Inc. in Tokyo, who has a “neutral” rating on DoCoMo. “The scale is also relatively small, meaning the risk is lower.”
For TTSL, part of the Tata group, Wednesday’s transaction brings it capital to expand its networks as also technology and experience in high speed data services, a telecom expert said. India intends to auction licences and wireless spectrum, or air waves on which mobile phones work, for data-rich services, also called third generation (3G), by January.
“Going forward, the revenues will be driven more through enterprise solutions, data and new valued-added products, and less depended to connect new subscribers. The differentiator that will increase revenues will not just be related to price and product, but quality of service to customers,” said Usha Rajeev, leader of the telecom practice at audit and consulting firm PricewaterhouseCoopers’ India offices.
The Nikkei newspaper, which wrote the story in its Wednesday edition, said DoCoMo will obtain about a 20% stake in TTSL through new shares and buy the remaining 6% from existing shareholders.
Mint, on 15 October, had reported the deal was in its final stages and that Tata group companies, such as Tata Power Co. Ltd, which hold equity in the phone firm would sell part of their stake.
Wednesday’s deal whittles down the number of Indian telecom assets left for a potential takeover or alliances with foreign-owned phone firms such as AT&T Inc., Deutsche Telkom AG and Qatar Telecom Ltd that have expressed interest in India.
Last month, Norwegian telecom company Telenor bought 60% of Unitech Wireless Ltd for $1.07 billion, tracking a deal weeks earlier between Etisalat and Swan Telecom Ltd that saw the Mumbai firm divesting 45% for $900 million. Both Unitech Wireless and Swan Telecom are new phone firms that received licences and spectrum rights earlier this year and are yet to build networks.
Telekom Malaysia received 19.99% in Idea Cellular in lieu of equity and Rs7,300 crore in cash in June. Sistema’s 10% buy in Shyam Telelink in September last cost the firm $11.4 million.
These deals leave Datacom Solutions Pvt. Ltd, S-Tel Ltd and Loop Telecom Ltd as the last among the new phone firms that also have spectrum rights without overseas partners.
One expert predicted a rush to partner these firms. “All the players will vie with each other and the one who offers the strategic advantage, or has the better leverage will get it,” said Arvind Subramaniam, partner and managing director at Boston Consulting Group’s Mumbai offices.
Loop Telecom, owned by the Ruia family of the Essar Group of firms, has started negotiations with potential partners to sell a part of their stake, a senior executive said, asking not to be named. The talks are at an early stage and a deal is expected to happen from six months to a year, the executive added.
Other players said they were not keen.
“We would go alone to launch our wireless business,” Videocon Industries Ltd chairman Venugopal Dhoot had told Mint on 6 November. Videocon is a majority shareholder in Datacom and is in a shareholder dispute with Mahendra Nahata, a New Delhi businessman.
An executive with Reliance Communications Ltd, the second ranked mobile phone services firm in the country by numbers, which doesn’t have a foreign partner and is two-thirds controlled by billionaire businessman Anil Ambani, too said the company was not interested in getting a foreign partner.
Bloomberg and Reuters contributed to this story.