The iconic business group finds its search for a viable business model in mobile telephony business still elusive
On December 21, 2010, at 6:00 p.m., Ratan Tata met the newly appointed telecom minister Kapil Sibal at Sanchar Bhavan in the capital. The meeting — which came after several weeks of media accusing his publicist of trying to manipulate the previous telecom minister A. Raja — lasted for half an hour. In this meeting, Tata is said to have emphasised his most vocal demand to set right anomalies in the government’s telecom regulation and give his group a fair chance of doing business.
Ever since the taped conversations of Niira Radia were made public, Ratan Tata has been unusually vocal about his telecom business. In November last year, Tata publicly stated that a few telecom companies were hoarding scarce and expensive spectrum. That prompted Sunil Mittal, the head of India’s largest mobile phone operator Airtel, and Marten Pieters, head of the second largest player Vodafone Essar, to rebut his charges immediately.
Around the same time, Tata crossed swords with Rajeev Chandrasekhar, member of Parliament and the former CEO of BPL Mobile (now Loop), refuting what he called untruths and distortion of facts. He was referring to a letter Chandrasekhar wrote to him.
Why is Ratan Tata so upset? He is angry that his telecom business is looking to be lost inside the regulatory maze. He shouldn’t blame it all on the regulation though. While regulation is at fault, it is also a fact that his underlying business model is broken and needs some serious repair.
The business, today, is bleeding. The Tata group has so far invested more than Rs. 37,000 crore in the telecom business. Between its two companies, Tata Teleservices (TTSL) and the listed Tata Teleservices (Maharashtra) (TTML), the group has written off nearly Rs. 7,000 crore in losses, the biggest ever in recent times for the $80 billion group. Yet, last year (2009-10), it declared fresh losses of over Rs. 2,000 crore. Tata Communications, the third group telecom company which took over assets of government-owned VSNL, made losses last year after a large acquisition.
Having taken over the reins of the Tata group in 1991 from the iconic J.R.D. Tata, Ratan Tata is credited for several pathbreaking moves in the group, including the launch of Nano. The two flagship companies, Tata Steel and Tata Motors have grown several times under his leadership and have big international footprints.
The crucial question then is: Will Tata remain a significant, profitable player in the telecom space or will the investment go down as one of Ratan Tata’s worst ever business decisions? Kishor Chaukar, director, Tata Investments, who oversaw investments in the business, says, “Telecom is a core business for the group and we are in it for the long term.”
This or That
In planning for a core business, Tata’s thinking has not been easy to fathom. The group began by wanting to be a fixed line player. Later, it ventured into limited mobility wireless, then to full mobility wireless, and finally to dual technology. “Tatas have been half-hearted about this business. When Reliance went in for dual technology, they went the whole hog and took a pan-India license while the Tatas took only eight circles,” says an industry analyst. So how is Ratan Tata planning to revive the business?
Srinath will have to make sure that revenue targets are achieved because the shareholder agreement contract allows DoCoMo to increase its stake in the event of this not happening. The key issue is that the competitive position of the business hasn’t improved even after the Tatas bid at the 3G auction. While experts and market studies indicate that 3G will be the next money spinner, the Tatas seemed to have quite a few pieces missing in their portfolio.
Frankly, Gulati can’t do any other thing. Telecom markets are getting saturated so quickly that he just has to grab subscribers as quickly as possible even if they aren’t very profitable. But ever since competitors matched its price cuts last year, the rate at which new customers are being won has come down. Now with the advent of number portability, grabbing subscribers will be a tougher task. Customers will normally switch to market leaders or if the network has exceptional voice clarity. Tata has neither the leadership nor the right type of network. It has the 1,800 MHz frequency band, which isn’t the best for voice clarity and competing on that front will be hard.
Finally, unlike Airtel and Reliance whose international long distance networks operations were part of their operations, the Tata companies have had to rely on Tata Communications to launch international products like calling cards. Since integrating all the different group companies are fraught with regulatory and ownership problems (two companies are listed and one is an unlisted joint venture with a foreign partner), the Tatas now expect to at least operationally synergise the three organisations. Gulati says, “However small operational costs we shave off in the current scenario, it is going to be useful.”
(This story appears in the 11 February, 2011 issue of Forbes India. To visit our Archives, click here.)