With the merger of the mobile wireless business of Tatas and Bharti, India’s largest conglomerate has embarked on a strategic overhaul of its entire telecom and media business.
Group insiders say that going forward, both sides will explore a deeper alliance that could soon involve consolidating their direct-to-home TV and broadband businesses. Further, Tata Tele’s profitable enterprise business, which is under Tata CommunicationsBSE 0.64 %, could be part of a future consolidation.
Tata ?Communications on Thursday said that it is holding exploratory talks to buy the enterprise business of Tata TeleservicesBSE 9.95 % and its listed entity Tata Teleservices (Maharashtra). Similarly, the small retail fixed Line business and the broadband business of Tata Tele are also set to be combined with Tata Sky, the Tata Group’s privately held direct to home (DTH) JV with Rupert Murdoch’s Rupert 21st Century Fox, and Temasek. Any such transaction will be subject to approval of the respective boards and other requisite clearances.
The rationale for clubbing broadband with DTH is in line with the global trend of offering bundled services to customers. “It’s all about controlling the pipe that enters the consumers home and offer them the entire service services suite. You can now offer them TV, streaming videos, voice, wi-fi, gaming either through satellite or through broadband,” explained a group official.
“Combining with AirtelBSE 6.64 % to become a powerhouse with a clear market share dominance will be the logical objective going forward,” said an official in the know.
Tata’s DTH operations have turned around in recent years and has been profitable at a profit after tax (PAT) level since this year. “This is a growing space and DTH and broadband will be a key business for us. We would look to acquire more to scale up the scope and size of the operations,” said Saurabh Agrawal, Group CFO, Tata.
India’s DTH market comprises 61.2 million users with four players competing for top position, with Dish TV leading the pack with 25% subscriber market share, followed by Tata Sky, with 23% and Airtel with 21%. That said, Tata Sky is the oldest and most established among them with better satellite capacity.
Tata Communications on Thursday said that the Board had decided to appoint ?independent advisors to evaluate the strategic salience of the telco’s enterprise business.
“Tata Communications often looks at potential opportunities in the various markets that it believes are in the best interest of Tata Communications. Tata Teleservices has built a powerful asset, serving enterprise customers in the fast growing Indian market. we believe that it would be a good fit for Tata Communications and its customers and help to strengthen Tata Communications’ leadership position in the segment,” said the Tata Group firm in a statement on BSE.
Of the approximately Rs 10,000 crore topline of Tata Tele, the lion’s share of revenues come from its enterprise business which is also profitable on a standalone basis. The company does not provide segment wise financials.
Analysts believe that Tata Communications is the natural home for the enterprise piece and the fair value of the business will have to be ascertained at an arms-length basis.
Tata Communications offers managed service offerings to small and medium enterprises and by merging the two, Tatas will be able to cross-sell these service solutions along with TCS’s product offerings.
The sources cited earlier said Airtel have also expressed their desire to combine forces in the enterprise segment. The combined enterprise business segment of Tata Communications and Bharti Airtel are at par when it comes to revenue, but the quality of customers and intra-city cable network of Tata Communications is far wider. As the first mover in many markets Tata Communications holds the key to lucrative customers. Further, Tata Communications is a profit making entity with its most expensive assets – optic fibre cables – already amortized, or paid for. This is a synergy Airtel would look forward to because expanding infrastructure for corporate customers is expensive, say analysts. With synergies between Tata Communications and Airtel, the two companies could create capacity for nearly twice the number of customers that they are currently serving, officials add.
The government has already expressed its intent to divest its shareholding in Tata Communications, which is expected to happen this year after the demerger of the surplus land that belonged to the erstwhile VSNL. That is expected to pave the for a larger alliance with Airtel. “Before the demerger and the divestment, the real value of Tata Communications will not be captured. That is an essential step. But the government can tender their shares during the merger as well,” said one of the persons familiar with the matter.
Source: Economic Times