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BW Businessworld

An Action Week For Telecom Cos

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It’s been a weekend full of action for telecom companies, both in India and abroad. At a global level, the much delayed deal between Nokia and Microsoft has been completed; while in India Japan’s NTT DoCoMo has decided to exit India’s seventh largest mobile operator Tata Teleservices (TTSL).
 
The Nokia-Microsoft deal does not include two manufacturing units – one each in India (Sriperumbudur) and South Korea (Masan). Nokia will, however, operate the Indian plant as a contract manufacturing unit for Microsoft. That could provide relief for the labour force employed there for the time being. However, it would all depend on how long Microsoft is interested sourcing from India. It is believed that Nokia would nominate India-born, Rajeev Suri, the current CEO of NSN (Nokia Solutions Networks) as Nokia’s new group CEO. That means that there will be an Indian CEO for both Nokia and Microsoft. Nokia expects the final sales price to rise slightly above the previously announced $7.52 billion.
 
Meanwhile, another baby step has been taken towards consolidation in India’s telecom industry. Japan’s NTT DoCoMo has decided to sell its 26.5 per cent stake in Tata Teleservices (TTSL). While this has been in the air for some time, it culminates the agreement entered into by DOCOMO with TTSL and Tata Sons in March 2009. Under the agreement, DOCOMO holds the right to require that its TTSL shares be acquired for 50 per cent of the acquisition price, Rs 7,250 crore or a fair market price, whichever is higher in case TTSL fails to meet performance targets.  
 
With DoCoMo exiting, the big question is what happens to TTSL. As things stand, India’s seventh largest operator has reportedly been looking for a buyer. However, it is saddled with over Rs 20,000 crore of debt on its books. That could prove a big deterrent to any company looking to acquire it.
 
The problems with TTSL do not end there. Being a dual technology operator, it has both GSM and CDMA subscribers. However, since it is a single licence, any operator acquiring it would need to pick up both operations. There is a solution to that tangle. Since the government is open to spectrum trading, any company that does acquire TTSL could hive off the CDMA operations and trade the spectrum.
 
Yet, it would not make TTSL an attractive buy for a global telco that is looking to expand in India. While it has been reported that UK-based Vodafone is interested in acquiring TTSL, in all likelihood, it would need some kind of a sweetener. Analysts claim that adding on Tata Communications that has a 240,000 route kilometre optic fibre backbone across the world would make it a better buy.
 
However, as things stand, it would be well over a while before these deals fall into place. A lot will depend on the direction that the new government takes in telecom policy after it takes over. That could well decide the way the telecom sector develops in the country.