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In keeping with the trend of equity selling, Tata Teleservices (TTSL) sold its 9.9% equity  to Singapore based Temasek Holdings and 8% equity in favor of Sterling group, owned by C Sivasankaran, for Rs 1,500 crore and Rs 1,200 crore respectively. So what does it effectively mean to the Indian wireless industry and to these companies? TTSL's sale of its 9.9% stake to Temasek is a case of each company meeting its needs, although their individual needs couldn't be more different.

While TTSL would use funds for its much needed network expansion, Temasek got the oportunity to increase its presence in the Indian market. Sivasankaran cannot hold more than 10% stake,  and he also has a no-compete agreement with Malaysian cellular operator Maxis, which recently bought Aircel from him. Hence, his equity selling has been seen as more of an entrepreneurial step.  

Temasek has its own interests in acquiring stake in the company. The contrast between the two could not be stronger. At face value, it looks like the decline of the old titan, having to sell family silver because it failed to keep up with the times: fixed in every sense. And, by comparison, the vigoros investment firm is going from strength to strength, almost ready to print its own money in the country.

The stake sale has been done primarily to raise funds and would definitely help TTSL to cope with the competition. With competition growing many fold every month, the company had announced Rs 36,000 crore expansion plan but it was seen more as a routine expansion exercise. The company has not made any major announcement with regards to its consumer offerings. 

As average revenue per user of mobile operators are dropping significantly to almost $7, and the convenience of mobile telephony and messaging have become a commodity rather than a premium service, a number of operators have gone out of business. Only those companies capable of expanding or joining forces with larger players have been able to withstand this slump. With the Temasek deal, TTSL is trying to get as much as it possibly can from the consolidation happening in this sector.

TTSL operates in 2200 towns across 20 circles in the country, with a customer base of over 8.4 mn. Its bouquet of telephony services includes mobile services, fixed wireless phones, public booth telephony, and Wireline services. The equity investment in TTSL would help it fund its proposed expansion plans without burdening itself.

Although TTSL's financials are in better  shape today, the company has been facing some significant hurdles as it is heading to become a pure play mobile operator. The company is strong enough to carry out its wireless operations without any urgent need for a strategic partner. Temasek's participation has been  made only for financial reasons rather than any synergy.

The sale could also push TTSL closer to taking another fund raising step-conducting an initial public offering. Markets are already agog with such rumors but analysts feel that there is smoke, but not fire yet.

Despite the various challenges, there are a few bright spots. The company has become a bit aggressive in its approcah after Ratan Tata took charge of operations. It has outsourced its entire IT infrastructure management to TCS for $250 mn over a period of five years. This will enable TTSL to focus more on its core business. The scope of the engagement with TCS include management of all IT-related activities including implementation, application development and maintenance, as well as change management across the enterprise. Also, TCS would be responsible for the management of data centres, information security management, training end users on new applications and disaster recovery. TTSL has also formed a consortium with VSNL and TCS to tap the global market.

These initiatives would definitely help TTSL in a long run but at present the company needs to focus more on next generation networks and provide end-to-end solutions to its customers. The other operators with their aggressive approach have an edge over TTSL, but it's expected that new shareholders joining on board, things will ultimately change.

Rahul Gupta
rahulg@cybermedia.co.in