Annoucing its exit, the Japanese telco said the spectrum administration in India was confusing and totally unpredictable

Japanese NTT DOCOMO has announced its plans of exercising the option of selling its entire 26.5% stake in Tata Teleservices Ltd (TTSL) by the end of June 2014 if TTSL fails to achieve certain performance targets. The stake sale would mark NTT DOCOMO’s exit from the Indian telecom market.

According to media reports, apart from TTSL itself, some other players like Vodafone could also look to buy these shares. This also implies potentially second consolidation among Indian telcos. Earlier, in February Bharti Airtel tookover Loop.

"NTT DOCOMO’s potential exit again highlights the widely held view of ‘implicit consolidation’ in the market, whereby smaller operators aren’t able to compete, and are still struggling financially. The incumbents continue to benefit from this stability and continue to target further voice price hikes – however, an aggressive launch from Reliance-Jio could slow this," says Nomura in a research note.

Nomura says while it does not see any impact on the market landscape if the stake is bought by TTSL, there could be some concerns in case there is potentially some other buyer regarding what would be its strategy to monetise this investment.

Talking about NTT DOCOMO's exit plan, Nomura said, the Jananese company had five years, which would end in next couple of months, to decide whether to retain its ownership in TTSL.
 

"Key reasons for the exit appear to be TTSL’s weak performance (lost about 110 basis points (bps) of revenue market share in the last two years), and the uncertainties in the Indian telecom industry," Nomura said.

In its briefing to analysts, NTT DOCOMO management had said, "Initially our attempt was to roll out 3G services as quickly as possible and offer the services that we have cultivated in Japan,in the India market as well… and we thought the things were moving very very smoothly in the beginning but as you know very well this spectrum administration India was so confusing and was beyond our expectation this was totally unpredictable… the license that we had was repelled and our spectrum was taken away and they will redistribute the spectrum but that would incur some money and also in addition to that we had to pay some spectrum utilization money on top of license fee and in India, spectrum was awarded on circle by circle basis and in fact the most congested and most highest traffic circle of New Delhi, we paid for the spectrum but we have not been able to receive the spectrum yet."

"In this environment Tata introduced the 2nd base billing and that was well received and at one point we became the no.4 player by the number of subscribers but rest of the market followed the suit immediately and that resulted in intensified ompetition, so, therefore, Tata is struggling today in making profitable business,” the Japanese telco had said.