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DoCoMo enters Indian market with $2.7 bln Tata deal

Posted by Yogesh on Wednesday, 12 November, 2008

TOKYO/NEW DELHI (Reuters) – NTT DoCoMo Inc will pay $2.7 billion for a 26 percent stake in Indian telecom Tata Teleservices, giving Japan’s top mobile operator a foothold in the world’s fastest-growing major mobile market.

DoCoMo’s deal with India’s No. 6 mobile operator follows a $350 million investment in Bangladesh’s No.3 cellphone carrier, as it speeds up its expansion beyond a mature home market, and adds to the record $63 billion of overseas acquisitions by Japanese firms this year.

But as DoCoMo expands, salt-to-software conglomerate Tata Group — the parent of unlisted Tata Teleservices and the flagbearer for corporate India’s recent overseas expansion — has put its plans for acquisitions on hold due to the global credit crisis.

DoCoMo’s bill for the 26 percent stake is almost equal to the $3 billion market value of Tata Tele’s larger rival Idea Cellular.

It gives Tata Teleservices a valuation of $10.4 billion, more than the $9 billion market cap of No. 2 player Reliance Communications, which has almost double the user base of Tata Tele.

“This investment does not seek short-term returns but rather seeks long-term return through the growth of the Indian market as well as TTSL itself,” DoCoMo chief executive Ryuji Yamada told reporters in Tokyo.

“We consider the investment in TTSL as one of our most important deals in our overseas strategy.”

OPEN OFFER FOR LISTED TATA UNIT

DoCoMo will also make an open joint tender offer with Tata Sons, the holding firm of the group, to buy up to 20 percent in a listed unit of Tata Tele, as required by Indian law.

Ahead of the announcement, shares in the unit, Tata Teleservices (Maharashtra), closed up 7.6 percent in a Mumbai market that fell 3.1 percent while shares in DoCoMo ended up 1.3 percent in a Tokyo market down more than 1 percent.

Shinji Moriyuki, a telecoms analyst at Mitsubishi UFJ Securities, said DoCoMo’s recent acquisitions in Asia would be positive, especially with the company’s extensive knowledge of third-generation (3G) network services to which many developing countries are now moving.

“Many people have voiced concerns because of its overseas investment spree in the early 2000s and failures afterward, but business conditions are totally different now … it can count on growth in developing markets.” Moriyuki said.

But Harit Shah, a Mumbai-based telecoms analyst with Angel Broking, said DoCoMo was paying more than expected.

“Well done for (Tata), but pretty bad for NTT. Globally telecom firms’ valuations have fallen … and our (telecom) market is now like a two-lane highway where there are many cars,” he said referring to the heavy competition.

India is the world’s second-biggest mobile market, trailing only China. More than 10 million users signed up in September, taking the total customer base to 315.3 million, more than the population of the United States, and almost three times the size of Japan’s market of 109 million subscribers.

TOUGH COMPETITION AHEAD

Researcher Gartner forecasts India’s mobile user base will more than double to 737 million by 2012, as just over a quarter of India’s 1.1 billion population currently own mobile phones compared with a penetration level of about 85 percent in Japan.

DoCoMo will face tough competition though, as foreign firms such as Telenor, Etisalat ETEL.AD and Sistema have bought stakes in local firms and are gearing up to start services in India.

Currently home-grown Bharti Airtel and Reliance Communications dominate along with a Vodafone unit.

Tata Teleservices, which had 29.3 million wireless users as of end-September, currently provides services on the CDMA platform but is also expanding in the popular GSM technology that corners three-quarters of the Indian market.

Yamada said Tata Tele would launch GSM services in January and expected the move to add to growth.

Carriers in India at the moment provide only 2G services. A global auction of radio waves for 3G and 4G wireless services, which provide more advanced mobile services including video, is due in January.

Foreign firms can buy up to 74 percent in Indian telcos, but Tata Group normally holds majority stakes in all its core businesses. Yamada said a 25 percent stake would give it the right to veto business decisions. He did not rule out the possibility of taking a majority stake in the future.

JPMorgan advised DoCoMo on the deal, and Lazard advised Tata Teleservices.

DoCoMo spent nearly 1.9 trillion yen in the late 1990s and early 2000s on small stakes in operators around the world to promote use of its i-mode mobile Internet technology and ensure the adoption of 3G networks on the same W-CDMA standard it uses.

But it saw its investments sour, and pulled out of AT&T Wireless Services Inc, Dutch operator KPN Mobile N.V. and Hutchison 3G UK Holdings after incurring heavy losses.

The Tata Group, which splashed out an Indian record of $13 billion for steelmaker Corus in 2007 and this year bought Jaguar and Land Rover $2.3 billion, has put further acquisitions on hold due to the credit crunch. Source Reuters

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