DJ Tata DoCoMo: Another Promising Marriage Falls Apart -- WSJ Blog
6:52 AM Eastern Daylight Time Apr 25, 2014
By R. Jai Krishna
After five years of trying to conquer one of the most competitive telecommunications markets in the world, Japan's largest cellular operator, NTT DoCoMo Inc., is planning to pull out of its Indian venture with Tata Teleservices Ltd.
The Japanese giant invested about $2.7 billion for a 26% stake in Tata Teleservices in 2008 with big plans to bring its cutting-edge wireless services to the booming Indian market. Today the two sides are looking to break up. The Indian market isn't growing as fast as it once did and DoCoMo's technology failed to give the venture enough of an edge.
When NTT DoCoMo entered India, millions of new customers were signing up for cellphones every month.
Battling to attract first-time phone users, Tata Teleservices helped launch a price war. Other operators followed, but at the cost of profitability.
"Competition is too high," said Jayesh Kumar, a telecom analyst at Mumbai-based brokerage Kotak Securities. "They were not profitable in the business."
Added to the stress on the industry: A 2012 judgment by Indian Supreme Court canceled more than 100 cellphone permits, citing corruption in their allotments in 2008. That judgement put in jeopardy the billions of dollars that foreign cellphone companies had invested in India.
Some operators, such as Emirates Telecommunications Co. and Bahrain Telecommunications Co., decided to shut shop. Others including Telenor, Sistema and Tata DoCoMo were forced to scale down their operations and improve profitability.
Tata Teleservices also had a unique problem: Its operating costs were higher than is rivals because it provides cellphone service using two different kinds of technologies, company officials say. This meant double the bandwidth charges, and also increased marketing and sales expenses.
Another analyst said Tata Teleservices' ability to raise cash for expansion, and its huge debt of more than $4 billion, may also have been a growing concern for NTT DoCoMo. "There was always a concern that staying (in the venture) would also mean more capital to be infused," said Shobhit Khare, telecom analyst at Motilal Oswal Securities Ltd.
This will be the second recent high-profile exit of a Japanese company from the Indian market. The century-old Japanese drug firm Daiichi Sankyo Co. said April 7 it was selling its stake in the Indian pharmaceutical company Ranbaxy Laboratories Ltd. after losing billions of dollars when many of its products were blocked and declared unsafe by the U.S. Food and Drug Administration.
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