Bharti Airtel Ltd is acquiring the Tata conglomerate’s consumer mobile business, the two companies said on Thursday, in a deal that gives India’s top wireless player a major subscriber base boost for virtually free, while stemming the bleed for Tata from a loss making venture.
The transaction will be done on a “debt-free cash-free” basis, the companies said in their joint statement, although Bharti Airtel will take over a “small portion” of Tata’s unpaid spectrum liabilities.
Tata Teleservices and its unit Tata Teleservices (Maharashtra) Ltd have more than 40 million subscribers and rank ninth in India’s telecoms market, which had a total of 1.2 billion mobile subscriptions at the end of July.
The Indian telecom sector is in the midst of a wave of consolidation after the entry of Reliance Industries’, Reliance Jio Infocomm venture.
Reliance Jio, backed by India’s richest man Mukesh Ambani, has sparked a price war and cut-throat competition in the space, eroding profits for carriers at a time when they already have high debt levels after costly airwave purchases.
As part of the deal, Tata’s mobile customers in 19 service areas will move to Bharti Airtel along with airwaves that Tata had purchased.
“Tata and Bharti Airtel will work together to further explore other mutual areas of cooperation,” the companies said.
The statement also said Tata is in the initial stages of exploring a combination of its enterprise business with Tata Communications Ltd and its retail fixed-line and broadband business with satellite TV arm Tata Sky.
40,000-cr debt pile
For the Tata Group, the deal is part of Chairman N Chandrasekaran’s plans to exit a loss-making business. Tata Tele has a debt of about ₹40,000 crore. The company’s losses have been mounting over the past few years after the operator failed to sustain investments in both CDMA and GSM networks.
Accumulated losses stood at ₹38,175 crore as of March. Tata Sons has invested at least ₹50,000 crore in the business over the last two decades.
“There are many errors that Tata Tele did, but the biggest of them was to run duplicate networks on different technologies. It could also not capitalise on the partnership with NTT DoCoMo,” said a former Tata Tele executive.
While the deal with Airtel does not help Tatas reduce the debt pile, it is exploring the option of combining Tata Tele’s telecom enterprise business with group company Tata Communications and its retail fixed-line and broadband business with Tata Sky.
“We believe today’s agreement is the best and most optimal solution for the Tata Group and its stakeholders,” Chandrasekaran said.
“Finding the right home for our long-standing customers and our employees has been the priority for us. We have evaluated multiple options and are pleased to have this agreement with Airtel,” he added.
Amresh Nanadan, Research Director at Gartner, said the deal was a good step as it enables the Tata Group’s customers to move to another operator instead of closing down operations.
Tata will retain its stake in tower company Viom, and will take care of the liabilities associated with it, according to the statement.
Goldman Sachs advised Tata on the deal.