NTT Docomo may exit from Indian telecom market as its talks with Sistema to dilute stake in its joint venture with Tata Teleservices are in an advanced stage.
Russian conglomerate Sistema, which has substantial equity in Sistema Shyam Teleservices (MTS India), may buy NTT Docomo’s stake and part of Tata’s stake in Tata Teleservices.
MTS to gain
The merger talks — in an advanced stage — indicate that MTS India is set to expand its presence in India after it lost considerable presence in the Indian telecom market after the February 2012 Supreme Court order.
MTS will benefit as Tata Teleservices offers mobile services using both CDMA and GSM technologies. Also, Tata Teleservices has 3G presence — mobile broadband is one of the focus areas for MTS India.
In addition, Tata Teleservices is strengthening its presence among Indian enterprises — one of the neglected areas for MTS.
The immediate focus of MTS is to efficiently run its 9 circle operations and turn OIBDA (operating earnings before depreciation and amortisation) positive by end of 2014.
The current M&A talks also indicate that discussion between Uninor and Tata Teleservices are not going smoothly.
Tata not to invest more in telecom
Tata Group may reduce its exposure to the telecom sector by holding a minority stake in Tata Teleservices.
Tata Teleservices is a loss making company. The ARPU of Tata Teleservices is Rs 136 compared with the industry average of Rs 140 a month. For the nine months ended December 2012, Tata Teleservices reported an operating loss of Rs 190 crore (operating loss margin of two percent), compared with Rs 247 crore (margin of three percent) in the same period the previous year.
Tata Teleservices had a total debt of Rs 29,300 crore as on December 31, 2012.
Tata Teleservices’ customer base stood at 66.9 million as of February 2013, compared with 80.2 million at the end of June 2012.
M&A guidelines hurdle
Sistema has appointed Rothschild, while Standard Chartered Bank is assisting the Tata Group, Economic Times reported.
The report says the transaction will be held up till a new merger and acquisition policy is announced for the telecom sector.
Current M&A guidelines are not conducive for the deal as they may require MTS to either surrender or pay the market price to retain the airwaves held by Tata Teleservices.
NTT Docomo bought 26 percent stake in Tata Teleservices in November 2008 for around Rs 13,000 crore.