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DoCoMo heads for India exit as competition, regulation take toll

DoCoMo heads for India exit as competition, regulation take toll

By Reuters | Updated: 25 April 2014 17:25 IST

Japanese telecoms giant NTT DoCoMo Inc is seeking to sell its stake in a loss-making Indian joint venture with conglomerate Tata Group, likely at a deep discount, bowing out of the world's second-biggest mobile phone market.

DoCoMo's exit from India after just five years highlights the difficulties both foreign and local telecom companies face in a fiercely competitive market, where carriers rely on cut-throat pricing to attract subscribers.

DoCoMo paid 266.7 billion yen ($2.61 billion) for a 26.5 percent stake in Tata Teleservices in 2009. Under the joint venture agreement with Tata, DoCoMo could sell its stake for about half of what it originally paid for the stake or at a "fair market price", whichever was higher.

"We invested in India because at the time we saw excellent growth prospects in emerging countries and we wanted to be involved there," DoCoMo Chief Executive Kaoru Kato told reporters on Friday after the company posted its earnings for the financial year ended March 31.

"We came to this decision (to sell) because the growth we've seen in five years is not what we expected," he said.

Tata Sons, the holding company of the Tata Group, confirmed DoCoMo's plans to sell its stake in Tata Teleservices.

"As also stated by NTT DoCoMo, it is not possible to predict how events will unfold; however, Tata Sons is cognizant of its responsibilities, and will act keeping in mind the interests of all stakeholders and in accordance with law," it said in a statement.

DoCoMo's Kato blamed the joint venture's poor performance on a delay in introducing 3G mobile networks that can carry high-margin data services, as well as an alleged corruption scandal that saw several companies, including Tata Teleservices, losing some or all of their zonal operating permits.

DoCoMo is one of several Japanese companies struggling with their investments in India, a rapidly growing market these firms had hoped would offset the effects of an ageing, and shrinking, population at home.

Pharmaceutical company Daiichi Sankyo Co agreed this month to sell its stake in drugmaker RanbaxyLaboratories Ltd to India's Sun Pharmaceutical Industries Ltd after quality glitches led to its drugs being barred from the United States, halving the value of its initial investment.

Japanese carmakers including Toyota Motor Corp and Suzuki Motor Corp's unit Maruti Suzuki India have also experienced labour unrest at their factories in India, leading to production losses.

Lagging targets
DoCoMo, Japan's biggest telecom network by subscribers, said it would exercise the option to sell its stake by June if Tata Teleservices' financial results for the fiscal year that ended March 31 failed to meet targets specified under an initial shareholder agreement.

DoCoMo did not specify the targets, and unlisted Tata Teleservices is not obliged to publicly disclose its results. A DoCoMo executive who declined to be named told Reuters Tata Teleservices was not expected to meet the targets, but also declined to specify what they were.

Tata is due to reveal its finalised results to DoCoMo within weeks, the executive added, declining to be named because of the confidentiality of the matter.

New Indian rules do not allow a telecoms carrier with operations in India to buy a stake in a rival carrier, although two carriers can merge their operations.

Some Indian media reports have said Vodafone is a likely suitor for Tata Teleservices. Any deal, however, would require Tata Teleservices to be merged with Vodafone's Indian unit, with Tata Group either fully exiting the business or taking a minority stake in the merged entity.

"TTSL (Tata Teleservices Ltd) continues to be an integral part of the Tata group," the Tata Sons statement said on Friday.

Singapore state investor Temasek and Indian businessman C. Sivasankaran also own small stakes in Tata Teleservices.

Tata Teleservices expanded into lucrative GSM-based mobile phone services after the deal with DoCoMo and amassed subscribers by offering a cheaper per-second billing plan, but it subsequently failed to build on its initial success and has lost market share in the past two years.

It currently ranks seventh in terms of subscriber numbers among the 12 firms that operate in India.

© Thomson Reuters 2014

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