Tata group’s debt-ridden telecom services company Tata Teleservices continues to suffer setbacks in its efforts to get into a strategic alliance. The company is fast running out of options. And if reports of Sunil Mittal-led Bharti Airtel opting out of talks is anything to go by, the only speculated suitor now might be Reliance Jio Infocomm, for which buying out Tata Tele might not be a very attractive proposition.
For Jio, which has a base of 125 million users, at present, buying out Tata Teleservices would make sense only if the latter is willing to sweeten the deal by selling only the assets – spectrum and subscribers – or covering a large part of its burgeoning debt. The issues facing Tata Tele, most likely the reasons why Bharti walked out of a deal, or why Singtel and its partners became jittery, would be significant factors in the talks with Jio as well.
In terms of a subscriber market share, if it were to buy Tata Tele, Jio’s control of the market would go up from the present 9 per cent to 13 per cent (with the addition of 45 million users). That would not sound like a compelling deal, given that Jio is itself hoping to draw at least 200 million new customers to its fold though its upcoming 4G-enabled feature phone JioPhone. And, with 125 million customers already on its network, that addition would close its gap with market leader Bharti Airtel.
In fact, if Jio were to focus on subscriber acquisition, a deal with RCom-Aircel-MTS would make more sense, as that would give Jio 177 million customers, in addition to valuable spectrum. Even in the case of Anil Ambani-controlled Reliance Communications (RCom), Mukesh Ambani’s Jio has been treading slowly. The company clearly not interested in picking up RCom’s huge Rs 45,000-crore debt. So, it has prepared a plan to reduce that number by half which, analysts say, would make it more attractive.
In the case of Tata Tele, however, the liabilities of a buyout are very high. For one, the acquirer has to take over the $4.5-billion debt on its books – something Ambani senior has been desisting from doing even for RCom, his younger brother’s company.
The acquisition of Tata Tele might be lucrative for anyone only if the Tata firm decides to sell only the assets, not the company, or sell the company after paring the debt substantially. Alternatively, Tata Tele could pick up a minority stake in Jio in return for sale of its business without the entire loan burden – an option that analysts see as improbable.
Even if only the assets — spectrum and customers — were to be sold, there would still be an issue, a serious one: The nature of spectrum that Tata Tele holds. To be fair, the spectrum in the 1800 band is valuable can be used by Jio to augment its 4G services. Also, acquiring the 6 per cent of overall spectrum that Tata Tele holds would increase RJio’s share of the total available spectrum to 25 per cent – more than Bharti Airtel’s 22 per cent and closer to Vodafone-Idea’s 28 per cent.
However, the problem lies in the fact that of the 91.6 MHz of 1800-MHz spectrum that Tata Tele owns, only 14.8 MHz is liberalised. By some calculations, liberalising the spectrum will cost the acquirer an additional $1.8 billion, which is not a small bill. For example, if Jio buys Tata Tele in the Delhi circle, it has to shell out over Rs 2,000 crore to liberalise the 4.4 MHz of non-liberalised spectrum.
Now, clearly, a buyout of Tata Tele with its debt and the additional burden involved in using the assets does not seem a mouth-watering deal. For any buyout to take place, Tata Tele will have to make some concessions somewhere.
Source: Business-Standard 