Given TataTeles negative net worth of R1,863 crore, and the manner in which the business has been going southFY13s net loss of R4,858 crore was higher than FY12s R4,228 croreit was never clear why the Tatas were hanging on to the business. Certainly, the customers werent hanging on, which is why the telcos subscriber base has been shrinking; even the average revenues per userprimarily from the data dongle businessare around a fifth lower than those of rivals like Bharti Airtel. Whatever the reason, what will help concentrate the groups mind is that its Japanese partner NTT DOCOMO has finally decided to exercise its options to get out of the company. Since the agreement mandates the Tatas to buy out DOCOMO at half the price it had paid if TataTele fails to meet certain performance targetsor a fair market price, whichever is higherthis means the Tatas will have to pay DOCOMO R7,250 crore in the next month or two, according to a DOCOMO press statement. RBI restrictions on pre-determined pricing for options will, though, complicate the exit.
One option, available in the past, may have been to try to hawk off DOCOMOs stake to another firm, either an existing player or a new one. An existing player, however, cant buy a stake in the firm in the new M&A rulesyet to be notifiedso will have to buy out the entire company. The telcos 63 million subscribers may not be worth too much, though the spectrum holdings would be worth a lot more. Tata Tele has 5 MHz of 3G spectrum in 9 circles and 4.4 MHz of 1800MHz spectrum in 18 circleswhile the 3G spectrum attracts no extra charges, a regularisation charge will have to be paid for the 2G spectrum since it was not bought at the market price. The spectrum was bought in 2008, so has around 14 years of residual life. Based on the current price, this means whoever buys Tata Tele will have to pay around R4,000-4,500 crore to the government for the residual life of the 2G spectrum. Given the 2G spectrum is only 4.4MHz, and not 5 MHz, it doesnt lend itself to being used to provide data services eitherwere a Vodafone to buy out TataTele, this would be an important pre-requisite. Even if you add another R5,000 crore for the 3G spectrum, this has to be contrasted with telcos R23,491 crore of debt at the