When NTT DoCoMo of Japan made its $2.7-billion entry into India by picking up 26.5 per cent in Tata Teleservices in 2009, the Indian mobile telephony sector was going through an unprecedented boom.
Tariffs were steady and millions of subscribers were coming on board every month.
Large multinational telecom service operators were making a beeline to the country: Telenor of Norway, Etisalat of the United Arab Emirates and Sistema of Russia. DoCoMo was the latest to join the party.
The mood was celebratory when Ratan Tata, then Tata Sons chairman, addressed a news conference in Mumbai to announce the DoCoMo investment.
Five years later, DoCoMo has decided to exit India — at a substantial loss. Under the agreement between the two partners, it is mandatory for the Tatas to buy out DoCoMo at 50 per cent of the original investment.
This erosion in value can be looked at from another angle: at least, DoCoMo will go back with $1.35 billion (almost Rs 8,000 crore), whereas others like Etisalat, Sistema and Telenor have lost a bulk of their investments in India.
DoCoMo had the option to sell its stake back to the Tatas by March this year which it decided to exercise. Still, the timing of DoCoMo’s exit is curious. The telecom sector has begun to show signs of a turnaround.
In the last couple of quarters, telcos have done away with discounts (base-level tariffs are yet to show improvement) and there is a sharp rise in data traffic. Both Bharti Airtel and Idea Cellular have reported a substantial jump in earnings for the quarter ended March 2014.
The government’s decision to auction spectrum and delink it from the subscriber base has helped telcos shed their long tail of inactive subscribers who made no contribution to their revenues.
The Telecom Disputes Settlement & Appellate Tribunal’s nod to intra-circle roaming pacts amongst telcos is expected to boost the 3G business.
The proposal of the department of telecom, or DoT, to allow spectrum trading is also expected to improve profitability.
Changing the game
However, whether the upswing in the sector’s fortunes will last is debatable: an aggressive launch from Mukesh Ambani’s Reliance Jio could slow the recovery, Nomura analyst Sachin Gupta said in a note to clients dated April 25.
It is possible that this may have played on DoCoMo’s mind. Reliance Jio is expected to launch its services, voice as well as data, with attractive price tags. That could set the clock back for the incumbents, it is being felt.
While briefing analysts on April 25, DoCoMo executives said the reason why the plug was pulled on India was the spectrum mess.
“We thought things were moving very, very smoothly in the beginning but the spectrum administration in India was so confusing and was beyond our expectation and totally unpredictable.”
There is some element of truth in it. For instance, Tata Teleservices’ spectrum in some circles was taken back after the Supreme Court in February 2012 cancelled 122 licences handed out in 2008-09 when Andimuthu Raja was the telecom minister.
(The Supreme Court had also fined Tata Teleservices of Rs 5 crore for benefiting from what was popularly known as “2G scam.”)
In subsequent auctions, the price of spectrum was much higher, which must have thrown DoCoMo’s business projections haywire. In the all-important circle of Delhi, the company was never allotted spectrum, in spite of having paid for it. “Tata (Teleservices) is struggling today to make a profitable business,” the DoCoMo executive said.
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