Japan’s telecom major NTT DoCoMo whose alliance with the Tatas led to an ambitious telecom marriage epitomised by a catchy jingle and a price war, has pulled out of their joint venture by deciding to sell its 26.5% stake back to Tata Sons Ltd at a hefty loss in a growing market.
Sources in Tata Tele Services Ltd (TTSL) said the sale price would be 50% of the acquisition price, which comes to Rs 7,250 crore, or a fair market price, whichever is higher. At this price it will be a loss Rs 6,623 crore compared with the total amount of Rs 13,873 crore invested by NTT DoCoMo.
The pull-out sets the stage for a possible acquisition of TTSL by companies such as Vodafone and MTS as India’s expanding telecom industry, constrained by higher spectrum costs that followed the 2G scam, tough compeition and high debt, heads for a phase of consolidation.
The Japanese giant had entered the venture five years ago with a $2.6 billion investment. At a board meeting held last Tuesday, NTT DoCoMo said that it plans to exercise its sale option under the shareholders agreement that provides for a clause under which it could sell its stake if performance targets were not met.
DoCoMo chief executive Kaoru Kato Kato blamed the venture’s poor performance on delays in introducing 3G networks.
The Tatas kept their options open.
“It is not possible to predict how events will unfold; however, Tata Sons is cognizant of its responsibilities, and will act keeping in mind the interests of all stakeholders and in accordance with law,” the Tata group said in a statement.
“Some consolidation is to be expected in Indian telecoms in the next few years,” said Mohammad Chowdhury, telecom analyst at consulting firm PricewaterhouseCoopers India, adding, the Tata venture’s CDMA spectrum could be a valuable asset for broadband players.