Tata’s Troublesome Telecom Legacy

30 11 2010

If you analyze case studies on strategy, business success would be attributed to one or more of these factors. First mover advantage, cutting edge technology from global leaders, big brand name, deep pockets, broad portfolio of products and services, opportunistic acquisitions etc are often cited as recipes for business success.  But if you would like to know an example of how despite all of the above, a business does not achieve success, look at Tata’s telecom sector businesses. Despite everything, it is an also-ran in one of the fastest growing markets. Not becoming for India’s largest business house.

Way back in 1983, Ratan Tata had visualized entry into telecom as a part of the business plan for Tata Industries. When the government liberalized EPABX , Tata Telecom was set up in 1989 in collaboration with OKi of Japan. Tata Telecom later entered into collaborations with AT & T in 1994 and Ericsson in 1995 for distributing and commissioning various telecom hardware products in India. Tata Keltron was the second venture of Tatas for manufacture of push button telephones, in collaboration with Siemens. The hardware side of telecom business tasted some success in the late nineties and early 2000s. Tata Keltron was a BIFR case for some time and later merged into Tata Telecom. Now the Tatas have virtually exited the hardware side of telecom having sold majority stake in Tata Telecom to Avaya in 2004. Now this company is called Avaya Global Connect.

Tata  Teleservices was the vehicle through which Tatas entered the telecom services market way back in 1996. It started with basic telephony services using the CDMA technology for fixed wireless. TTL started with the AP circle. In 2002, Tatas acquired Hughes Telecom, a basic services operator in Maharashtra and renamed it Tata Teleservices (Maharashtra) Ltd. TTL now has an all India footprint and offers both fixed wireless and mobile phones under the Tata Indicom brand name.

Tatas were also among the first set of license holders for cellular services, through a joint venture with Bell Atlantic. They started their GSM operations from AP. After Bell Atlantic exited the JV, it became part of a Birla-AT&T- Tata joint venture, often referred then as BATATA in the media. In 2002, it became Idea Cellular Ltd and management control was with the Birlas. In 2006, Tatas exited this venture completely.

After initially betting on CDMA technology and exiting GSM completely, Tatas re-entered GSM once again through Tata DoCoMo in 2008. By then telecom regulatory regime had changed to Unified Access Services from separate licence for basic, fixed wireless and mobile services. Also, additional spectrum was issued in 2008 to new players, the origin of the current 2G scam. TataDoCoMo is credited with the price war that started in 2008 with per sec billing plans etc.

Perhaps unable to break into the crowded marketplace for cellphone services, Tata brought in the Virgin mobile brand in India. Virgin mobile was positioned as a national youth-focussed mobile service. Tatas took some regulatory risks by bringing in Virgin when the policies related to MVNO ( Mobile virtual network operator) were not very clear. Virgin mobile today offers both GSM and CDMA services.

As if these many ventures was not enough, Tatas acquired a strategic stake in Videsh Sanchar Nigam Ltd (VSNL) when the government of India started its divestment process in 2000-01. VSNL had a monopoly in International Long Distance telephony till 2002. VSNL , also the first Internet Service provider ( ISP) in India since 1995 and had brought internet to India. Before acquiring VSNL, Tatas also got an ISP license and had launched Tatanova services in a few cities. VSNL is now Tata Communications. Tata Communications having lost monopolies is now hardly the money-spinner VSNL once was.

After all these years of investment, hard work and risk-taking, if one looks at the report card it is not a pretty picture for the Tatas. In cellular subscribers base Tatas are 5th behind Bharti, Reliance, Vodafone and BSNL. After the launch of Tata DoCoMo the new subscriber additions are faster. In wireline, they are again fifth, behind BSNL, MTNL, Bharti and Reliance as per this report. Financially, Tatas are even worse off. TTSL continues to reel under losses. As per an ET report the accumulated losses of the unlisted TTSL had mounted to Rs 10, 991 crores at the end of March 2009. The listed company Tata Teleservices Maharashtra continues to make losses. It reported Rs 97 crore loss in the latest quarter. The other listed company Tata Communications Ltd is also reporting losses. The consolidated results show a loss of over Rs 500 crore on a revenue of Rs 11,000 crore. The Indian operations are profitable but it is the African subsidiary which is reeling in losses.

Not able to become the market leader, in a market like India, where latecomers have become market leaders is bad. Accumulating huge financial loss is worse. But as if these woes were not enough the Niira  Radia controversy has added further to the tale of woes emanating for Tatas from the telecom business.

The Radia tapes has hit the Tatas where it hurts most. Tatas had a squeaky clean image in a country where corporates are known to grease the wheels of power to make things happen. Tatas had almost the image of a lotus in a cesspool.

There is nothing incriminating in the conversation between Ms.Radia and Mr.Tata. But it is quite clear that Tatas also play the same game that most corporates play to garner favours in the corridors of power and also manipulate in the choice of ministers. As it appears they were not in favour of Dayanidhi Maran , getting the Telecom ministry in UPA-II and used the services of Ms.Radia to manipulate the choice of portfolios. Now there is another investigation opened up to find out the role of Tatas in funding Unitech through an advance paid for a land deal just before they had to make payment for the telecom license.

Even in hindsight it is difficult to point out what blunders did Tatas do in the telecom business. Was it poor strategy? Was it poor execution of strategy? Was it poor leadership? Was it inability to secure favors and other privileges like free spectrum by manipulating the levers of government, (which Mr.Tata himself charges some other operators)?

The Radia tapes have taken the sheen of Tatas a bit, perhaps, quite a bit. Now, they don’t even have the excuse of playing straight in an otherwise corrupt and crooked business environment.

Mr. Tata, as he gets ready to hang his boots in 2012, may regret not having quit the murky telecom business earlier. It will remain a black mark in his illustrious track record of enormous achievements.


Hyderabad Blues

9 11 2010

On November 2, most newspapers in Hyderabad carried the news about the dismal performance (21 all out) by the Hyderabad cricket team in a Ranji match against Rajasthan. Debutant medium pacer Deepak Chahar ripped through the batting line-up to give Hyderabad the dubious distinction of scoring the lowest ever score in the 70 + years of Ranji trophy history.

This is almost symptomatic of the lows the city has been experiencing for the last two years.

Last year just after the Satyam scandal broke out I wrote a piece called Brand Hyderabad in Tatters. Things have not got better for Hyderabad. If anything, it has got worse.  

The untimely death of the Chief Minister YSR in a helicopter accident in September 2009 was perhaps the start of a political and administration decline in the state. Although, the Congress government remains firmly in saddle, the current Chief Minister hardly inspires any confidence in comparison to the charismatic CMs of the immediate past like YSR or Chandrababu Naidu.

The Telangana agitation has gathered momentum since end 2009 and the city has experienced repeated bandhs and tension is palpable in the city during important dates such as November 1st, the AP formation day. Many investments in the city have been put on hold waiting for the decision of the Justice Srikrishna committee which is expected to release their report in December 2010.

The SKS Microfinance IPO, a Hyderabad HQ co, was a major success. But, instead of paving the way for many Hyderabad microfinance companies to go for an IPO, there are huge controversies surrounding the entire microfinance business. SKS has only left a bitter after-taste in the mouth. SKS once again puts a taint on the Hyderabad brand.

The uncertainty about the future of the city has led to many investments moving away from the city. There are huge vacant spaces in the Hi-tech city and in the commercial hubs. Hyderabad had the largest number of IT-SEZs approved. Majority of these projects are in limbo.

In IT , Hyderabad’s loss has been the gain of Chennai and Bengaluru. In the case of pharmaceutical industries, many investments have moved to the Vizag the pharma city. Inspite of a automobile boom in the country, there is no automobile industry in the state. Hyderabad just remains a big consumer of cars and two-wheelers.  Not only investors have fled, the students of engineering , MBA, MCA have also decided to move out of the state in droves to join colleges in the neighboring states.

In the last one year, opening up of the India office of Facebook is perhaps the only major new foreign investor coming towards the city. Whereas, in terms of policy, nothing major has changed, the perception about the city and the state has changed for the worse.

One indicator of  how the city is perceived can be made out by the fact that the US President Barack Obama has given Hyderabad a miss unlike his predecessors Bill Clinton and George W Bush.It appears it is no longer a hot destination for US businessmen.

Hyderbadis can take inspiration from their Hyderabadi sport stars Saina Nehwal and VVS Laxman, who have demonstrated great strength of character in the playing field, that you can always come back from behind. Being down is not being out.

– G. Mohan

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