DoCoMo to exit India

Japan’s biggest mobile operator NTT DoCoMo is disconnecting from Tata Teleservices, its partner of five years, by offloading its entire stake at as low as half the original acquisition price of $2.6 billion. It becomes the second Japanese major to exit India in recent weeks after Daiichi Sankyo sold its interests in Ranbaxy Laboratories.
The over two-decade-old DoCoMo had acquired a 26.5% stake in Tata Teleservices between 2009 and 2011 in a deal that was supposed to catapult it into the telecom industry big league but cutthroat tariff competition, regulatory uncertainty and billions of losses have forced the Japanese biggie to hang up on Asia’s third largest economy. Besides, this move has left a question mark on Tata Teleservices’ future.
Under the 2009 joint venture agreement, DoCoMo had two options: one, to increase its stake to 51% in two phases by March and the second to sell its stake for half the acquisition price or at a fair market price, whichever was higher. Both the options were linked to performance targets and with the Indian joint venture missing the targets, the Japanese major has decided to dial out of Tata Teleservices.
The Tata Group holds 65% in India’s seventh-largest mobile services company, which lags far behind telecom giants Bharti Airtel and Vodafone. Singapore government’s investment arm Temasek and serial entrepreneur C Sivasankaran too own small stakes in the company. DoCoMo said it will exercise its sale option by June.
“We invested in India because at the time we saw excellent growth prospects in emerging countries and we wanted to be involved there,” DoCoMo CEO Kaoru Kato said. “We decided to sell because the growth we’ve seen in five years is not what we expected. Though, withdrawing was a very bitter decision.” In FY13, Tata Teleservices reported a loss of Rs 4,858 crore, while its debt was Rs 23,491 crore.
A host of problems like delay in introducing 3G services, telecom licence cancellations and corruption scandals led to the JV’s dismal performance, claimed DoCoMo.
In a statement, Tata Group’s holding company, Tata Sons, said, “As stated by DoCoMo, 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.”
With DoCoMo exiting the alliance, the Tata Group will come under pressure to fund the buyout as well as improve the telco’s performance. “
Media reports suggest that Vodafone and Russian conglomerate AFK Sistema, which owns MTS India, have held separate talks with Tata Teleservices to combine the business with the Tata Group either bowing out of the telecom business or holding a minority stake in the merged entity. However, Tata Sons said that the company “continues to be an integral part of the Tata Group”. India’s largest private sector conglomerate recently inked a deal to sell its South African fixed line telecom operator Neotel to Vodafone.