Until a few months ago, the impression was that the Tata Group was in no mood to continue with it's Telecom business & was desperately looking for a buyer. Tata Teleservices Ltd and it's associate firm Tata Teleservices (M) Ltd had not managed to achieve the performance goals set by NTT DoCoMo, which were set when the Japanese company had invested over $2 billion in the two telecom firms few years back. Early last year NTT DoCoMo decided to exercise the Put Option and exit the Tata Group's telecom firms. Now Tata Group had to urgently find a buyer for NTT DoCoMo's stake or buy-it-back itself. No outside buyer was ready to buy at the predetermined valuation. The buyback transaction is still under Indian regulatory objections, but might eventually get through.
Everyone thought that Tata Group will immediately sell off it's stake in the Telecom firms after completing the NTT DoCoMo transaction. But there have been some surprise developments in the two firms in the last 6 months or so. TTSL & TTML were holding 3G license in many crucial circles since 2010, but did not expand it's coverage beyond certain top cities in each circle. On the other hand, all other 3G operators had done substantial coverage expansion between 2011 & 2013. This had led to TTSL & TTML losing it's market share in the Wireless Data service business. The main problem was the companies' mounting Debt & lack of operating Cash Profits.
In June'2011 TTSL & TTML's combined VLR Subscriber base (Active base) stood at 43.69 million, which increased to 48.76 million by August'2012. This was the highest number the two firms had touched till date. After that point the competition's wider 3G as well as 2G coverage started attracting some of TTSL & TTML's customers and the VLR base kept falling gradually and fell to a low of 42.54 million by December'2013. Most of those who ported out from Tata DoCoMo were CDMA subscribers. From this point till September'2014, the service provider saw some moderate growth in it's VLR base. with Tata DoCoMo experiencing excellent growth in VLR base from the month of October'14 onwards. In the last 4 months till Feb'2015, the two companies together have added 2.19 million subscribers to it's VLR base, i.e. an average of almost 5.5 lakh subscribers every month. This is the best performance for the companies in many years.
The two companies seem to have raised fresh Capital from it's Promoter, i.e. Tata Group, under pressure from Banks, who had firmly said No to more funding unless the Tata Group adds more Capital in the business. A part of this Capital was used to undertake CAPEX to aggressively expand the companies' 2G GSM & 3G coverage to more cities & towns in the licensed areas and increase the server capacity to handle substantially more Data traffic. This CAPEX started in the September'14 quarter and has continued till date. This activity has immediately started showing results
The growth in Active subscriber base has had an immediate impact on the company's Total Income. We have the numbers for only TTML, which is a listed entity. We can clearly see a smart jump in TTML's Dec'14 quarterly Total Income. The continued increase in VLR base clearly suggests that this momentum is slated to continue or even get stronger in the March'15 quarter. I am expecting TTML's Total Income to grow by over 5% Q-o-Q. Remember that TTML operates in a highly competitive circles of Mumbai and Rest of Maharashtra & Goa. TTML has 3G license only for the latter circle, while it caters to Mumbai only with 2G GSM and CDMA-based Photon range of services. Vodafone is the strongest player in the Mumbai circle and Idea Cellular is strongest in the RoM&G circle.
Every operator is experiencing stupendous growth in revenues from Wireless Data business and being able to offer high-speed data speeds is the key in gaining incremental revenues. TTML's 3G license in RoM&G circle is a very important asset, which the company had not used properly until recently. But the company has been aggressively expanding it's 3G footprint in Maharashtra & Goa over the last 4-5 months and it's 2100 MHz 3G spectrum holding will get more properly used in the coming quarters. The other surprise came when the outcome of the recent spectrum auctions was announced. Tata Group had successfully bid for spectrum in the 800 MHz band worth almost Rs.8000 crores in select circles. This included spectrum worth almost Rs.3820 crores for Mumbai & Rest of Maharashtra circles. This was not just a surprise, but a shocker for most people who were following Tata Group's Telecom businesses closely. TTML has acquired 2.5 MHz in each of the two circles in the 800 MHz frequency band, which is highly suitable for 4G services. TTML already holds 3.75 MHz in Mumbai & 2.5 MHz in RoM&G circle in the same frequency band, but it's not the liberated kind and the company will have to shell out more money to liberate the existing holdings and then it can use the entire spectrum holding for launch of 4G services.
Here is the interesting part. During the 2010 3G spectrum auctions, TTML had won the 5 MHz slot in the 2100 MHz frequency band for RoM&G circle for less than Rs.1300 crores. And now TTML has won the 2.5 MHz slot in the 800 MHz band for the same circle for a whopping Rs.2000 crores!!! TTML has won the bid for Mumbai circle for the same quantity of spectrum in the same band for a slightly lower price at Rs.1820 crores. (This was another big surprise as the Mumbai circle price was expected to be much higher as compared to RoM&G circle.) The company is shelling out so much for spectrum at a time when it's Financial condition is not that strong. During the 2010 auctions, the company had just sold it's Tower subsidiary & used that money for the auctions. For this auctions, the Tata Group seems to have infused substantial Capital and given confidence to Banks that it is now taking this business very seriously.
Another possibility is that the Tata Group has reached an understanding with another telecom player like Telenor or Sistema or someone else, that they will be acquiring a substantial stake in TTSL & TTML as soon as the Govt. announces revised M&A rules for the Telecom sector. In either cases, these recent developments are very big positives for long term shareholders of Tata Teleservices (Maharashtra) Ltd. The company & it's promoter are finally taking steps to grow the business and improve it's valuation.
Everyone thought that Tata Group will immediately sell off it's stake in the Telecom firms after completing the NTT DoCoMo transaction. But there have been some surprise developments in the two firms in the last 6 months or so. TTSL & TTML were holding 3G license in many crucial circles since 2010, but did not expand it's coverage beyond certain top cities in each circle. On the other hand, all other 3G operators had done substantial coverage expansion between 2011 & 2013. This had led to TTSL & TTML losing it's market share in the Wireless Data service business. The main problem was the companies' mounting Debt & lack of operating Cash Profits.
In June'2011 TTSL & TTML's combined VLR Subscriber base (Active base) stood at 43.69 million, which increased to 48.76 million by August'2012. This was the highest number the two firms had touched till date. After that point the competition's wider 3G as well as 2G coverage started attracting some of TTSL & TTML's customers and the VLR base kept falling gradually and fell to a low of 42.54 million by December'2013. Most of those who ported out from Tata DoCoMo were CDMA subscribers. From this point till September'2014, the service provider saw some moderate growth in it's VLR base. with Tata DoCoMo experiencing excellent growth in VLR base from the month of October'14 onwards. In the last 4 months till Feb'2015, the two companies together have added 2.19 million subscribers to it's VLR base, i.e. an average of almost 5.5 lakh subscribers every month. This is the best performance for the companies in many years.The two companies seem to have raised fresh Capital from it's Promoter, i.e. Tata Group, under pressure from Banks, who had firmly said No to more funding unless the Tata Group adds more Capital in the business. A part of this Capital was used to undertake CAPEX to aggressively expand the companies' 2G GSM & 3G coverage to more cities & towns in the licensed areas and increase the server capacity to handle substantially more Data traffic. This CAPEX started in the September'14 quarter and has continued till date. This activity has immediately started showing results
Every operator is experiencing stupendous growth in revenues from Wireless Data business and being able to offer high-speed data speeds is the key in gaining incremental revenues. TTML's 3G license in RoM&G circle is a very important asset, which the company had not used properly until recently. But the company has been aggressively expanding it's 3G footprint in Maharashtra & Goa over the last 4-5 months and it's 2100 MHz 3G spectrum holding will get more properly used in the coming quarters. The other surprise came when the outcome of the recent spectrum auctions was announced. Tata Group had successfully bid for spectrum in the 800 MHz band worth almost Rs.8000 crores in select circles. This included spectrum worth almost Rs.3820 crores for Mumbai & Rest of Maharashtra circles. This was not just a surprise, but a shocker for most people who were following Tata Group's Telecom businesses closely. TTML has acquired 2.5 MHz in each of the two circles in the 800 MHz frequency band, which is highly suitable for 4G services. TTML already holds 3.75 MHz in Mumbai & 2.5 MHz in RoM&G circle in the same frequency band, but it's not the liberated kind and the company will have to shell out more money to liberate the existing holdings and then it can use the entire spectrum holding for launch of 4G services.
Here is the interesting part. During the 2010 3G spectrum auctions, TTML had won the 5 MHz slot in the 2100 MHz frequency band for RoM&G circle for less than Rs.1300 crores. And now TTML has won the 2.5 MHz slot in the 800 MHz band for the same circle for a whopping Rs.2000 crores!!! TTML has won the bid for Mumbai circle for the same quantity of spectrum in the same band for a slightly lower price at Rs.1820 crores. (This was another big surprise as the Mumbai circle price was expected to be much higher as compared to RoM&G circle.) The company is shelling out so much for spectrum at a time when it's Financial condition is not that strong. During the 2010 auctions, the company had just sold it's Tower subsidiary & used that money for the auctions. For this auctions, the Tata Group seems to have infused substantial Capital and given confidence to Banks that it is now taking this business very seriously.
Another possibility is that the Tata Group has reached an understanding with another telecom player like Telenor or Sistema or someone else, that they will be acquiring a substantial stake in TTSL & TTML as soon as the Govt. announces revised M&A rules for the Telecom sector. In either cases, these recent developments are very big positives for long term shareholders of Tata Teleservices (Maharashtra) Ltd. The company & it's promoter are finally taking steps to grow the business and improve it's valuation.
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