October 12, 2017 11:06 pm JST

India's Tata Group to sell troubled telecom business to Bharti Airtel

Sell-off marks another step in Chandrasekaran's larger plan to shed Tata Group's stressed assets

ROSEMARY MARANDI, Nikkei staff writer

A man leaves a Bharti Airtel store in New Delhi. © Reuters

 

MUMBAI -- Tata Group has decided to sell its troubled consumer telecom businesses to India's largest mobile services provider Bharti Airtel for an undisclosed sum, making it the latest casualty of the fierce competition in the country's telecommunications space.

The two companies have entered into an understanding to merge the consumer mobile businesses of Tata Teleservices and Tata Teleservices Maharashtra into Bharti Airtel on "a debt-free cash-free basis, except for Bharti Airtel assuming a small portion of the unpaid spectrum liability of Tata's towards the Department of Telecommunication, which is to be paid on deferred basis," Bharti Airtel said in statement released on Thursday.

As part of the agreement, Bharti Airtel will absorb Tata's telecom operations across the country in 19 circles and gain around 40 million customers. Bharti Airtel will also bolster its strong spectrum footprint with the addition of 178.5 Megahertz spectrum of Tata telecom ventures and its fiber network.

According to July data from the Telecom Regulatory Authority of India, Bharti Airtel led the local market with over 281 million customers, while Tata Teleservices stood at eighth place with just 42.9 million subscribers.

"We believe today's agreement is the best and most optimal solution for the Tata Group and its stakeholders," said N Chandrasekaran, Chairman of Tata Sons. "Finding the right home for our longstanding customers and our employees has been the priority for us. We have evaluated multiple options and are pleased to have this agreement with Bharti."

Tata is also in the initial stages of exploring a combination of its enterprise business with Tata Communications and its retail fixed line and broadband business with Tata Sky.

On Monday, Chandrasekaran had admitted to news outlet CNBC's local associate that the group's mobile business was in a "really bad shape," struggling under a huge debt pile. He said a call would be taken on the business within the financial year ending March 2018. In his own admission, the venture has debt of around 310 billion rupees ($4.76 billion), besides having a huge spectrum liability. The venture was also incurring cash losses on a monthly basis.

Only in March, the Tata group and Japan's NTT Docomo finally resolved a row over a foundering telecom venture. The Indian conglomerate agreed to withdraw its objection to the enforcement of an international arbitration court's $1.17 billion award to Docomo over a dispute surrounding the terms of the Japanese company's exit from the partnership.

The sale of Tata Teleservices is part of Chandrasekaran's larger plan to shed the $103-billion group of stressed assets that are impacting overall profitability. Since Chandrasekaran took charge in February, monetizing assets, paring debts, and simplifying the group's cross-holding structure has been high on the agenda. Tata Teleservices was one of the sore spots, guzzling cash while piling on debt. In some other group companies, such as Tata Power, selling off troubled assets has been identified as a way to pare back debt. Tata Motors, too, is looking to sell off non-core assets to deal with its sluggish passenger car business.

In August, Tata Steel formed a joint venture with Germany's ThyssenKrupp to manage operations in Europe, after a round of sell-offs of steel plants in the U.K. and in continental Europe. According to various media reports, outright divestments or mergers of some small Tata group companies are also in the offing.

Arvind Singhal, chairman of retail consultancy Technopak Advisors, said: "Tata Teleservices in any case has hardly been doing much in the past few years and has been a loss-making proposition. For them it was a choice between whether you shut it down completely or merge with a player. For Bharti Airtel, it's a chance to acquire Tata Teleservices' infrastructure and customers. In this case it's not the merger of equals or two strong players. It's like one player who in any case had no option and is trying to find a way out by merging with Bharti."

With this deal Bharti Airtel should seal its leading market position against merged rivals Vodafone and Idea Cellular, as well fighting off competition from upstart telecom venture Reliance Jio Infocomm.

Pressure has been mounting on telecom companies since Reliance Industries' telecom arm emerged on the scene in September last year. Reliance Jio Infocomm is luring customers with free voice calls and ultra-low data rates. Rival telecom players have been slashing their own voice and data rates, both before and after Reliance Jio came on the scene.

In the span of a year, Reliance Jio has managed to corner 128.58 million customers and become the fourth largest telecom company by market share after Bharti Airtel, Vodafone and Idea Cellular.

In August Reliance Jio, run by India's richest man Mukesh Ambani, launched another offensive in the form of fourth-generation network-enabled feature phones effectively for free, leaving incumbent players in a state of panic. On Tuesday, Bharti Airtel revealed 4G phones, in association with Karbonn Mobiles, for the effective price of 1,399 rupees.

The Karbonn A40 Indian phones come with a retail tag of 3,499 rupees, but Bharti Airtel customers can buy them for an upfront payment of 2,899 rupees and receive cashback of 1,500 rupees.

Fitch Ratings believes broader pressures created by Reliance Jio's entry translates into a negative outlook for the Indian telecoms sector. It said Jio was likely to roll out other offers to increase its subscriber base over the next two years, and the incumbents were likely to continue to respond with price cuts, discounts and promotions of their own.

"As a result, industry-wide mobile blended average revenue per user is likely to fall to around 150 rupees ($2.2) by March 2018, down 5% from March 2017," Fitch said in a note.

Manoj Gairola, telecom analyst and editor of telecom industry news portal Telecom Tiger, believes that with such consolidation going on, India is moving toward a situation where there will be just three or four operators in the near future.

Nikkei staff writers Kiran Sharma and Yuji Kuronuma in New Delhi contributed to this article.

Asia300

Bharti Airtel Ltd.

India

Market(Ticker): BOM(532454)
Sector:
Industry:
Communications
Wireless Telecommunications
Market cap(USD): 26,578.4M
Shares: 3,997.4M
Asia300

Idea Cellular Ltd.

India

Market(Ticker): BOM(532822)
Sector:
Industry:
Communications
Wireless Telecommunications
Market cap(USD): 4,384.44M
Shares: 3,607.17M
Asia300

Tata Power Co., Ltd.

India

Market(Ticker): BOM(500400)
Sector:
Industry:
Utilities
Electric Utilities
Market cap(USD): 3,400.1M
Shares: 2,704.77M
Asia300

Tata Motors Ltd.

India

Market(Ticker): BOM(500570)
Sector:
Industry:
Consumer Durables
Motor Vehicles
Market cap(USD): 20,740.6M
Shares: 3,395.85M
Asia300

Tata Steel Ltd.

India

Market(Ticker): BOM(500470)
Sector:
Industry:
Non-Energy Minerals
Steel
Market cap(USD): 10,631.9M
Shares: 971.21M

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