Emerging market dynamics can be ruthless and if that market is India, apart from all the smarts, right contacts, public relations, tons of cash, one might still need not so obvious things like sorcery to succeed. Early May, Japan’s DoCoMo decided to exit Indian alliance with Tata (now famous Tata DoCoMo, fully integrated multi-services brand) after five gruelling years and large investments in brand, network and marketing dollars went down the tube.
When DoCoMo entered the market with a 26.5% stake in Tata Teleservices for $2.7Bil in 2009, no one really gawked because it was the heady days of mobile: India was adding several million subscribers every month over a base of about 500 million, every major CSP (cellular service provider) wanted to be a player in India, multiple rounds of spectrum were being made available (although the rationing of 4.4MHz / or 5MHz per circle was a pittance compared to global standards) and was the fastest growing mobile market in the world.
Five years later, in 2014, after perhaps another billion dollars in sales, marketing and customer acquisition /service efforts, DoCoMo has decided to throw in the towel, and walk away. Terms of the contract requires that Tata pay back at least 50%of the original investment ~ $1.35 billion owing to a sell-back to founding partner clause which it decided to exercise.
The timing of DoCoMo’s entry is quite unfortunate: 2010 was the beginning of the end of the good days in Indian telecom. The 2G scam broke out, the judicial system stepped in because an inept government couldn’t handle it, smaller telcos fled, joint ventures broke down, new licensees stalled investment and progress, courts cancelled 122 illegal licenses, and the market fell into doldrums. The period from 2011-14 was the worst phase of a completely bottomed out market with neither impetus nor momentum to progress.
In this market, over this period, DoCoMo’s Indian venture built out a 62 million subscriber base, built a revenue base of about $1.79bil (as of 2013), incurring a loss of about $800 mil (for year 2013) accumulating a debt of about $3.9 bil. Continued uncertainty of spectrum policy / pricing (active sharing unclear), business uncertainty regarding exit (merger policy very new), delayed decision making and unfriendly business practices by government (arbitrary interpretations of taxation rules retroactive from a historic base year) paralyzed DoCoMo’s business planning and added level of uncertainty the company wasn’t able to handle. It gave up choosing to exercise its safe exit option, where it would cut its losses and exit.
To make it worse, DoCoMo’s exit is ill-timed too. Riding on the back of a strong single party dominated majority, a new government is taking over within 2 weeks of DoCoMo’s announcement to exit. This government represents positive movement for the economy, business friendly environment, a mandate built upon the promise of growth and development. It is expected to represent everything the previous regime was supposed to but did not deliver. Of course, Tata DoCoMo alliance may have failed to cross its internal hurdle rates by a large factor and / or it could have pulled the plug for other reasons. Still, there is no denying that the signs of a mobile broadband growth trigger is likely sometime in 2015 are visible.
3G prices have fallen and will be soon approaching mass market levels. Airtel just launched a 4G data plan in Ludhiana for Rs100 per month and Reliance Jio magic is believed to be a big kick-starter. 3G handsets are already breaching $60 mark and will likely take off by 2014. India is one of the world’s fastest growing social media markets and most underserved broadband markets too. DoCoMo will exit a serving base of over 62 mil subscribers and walk away, while players such as Reliance Jio have yet to begin the race.
Perhaps DoCoMo ill-timed the Indian market twice – upon entry and exit too. A more detailed analysis of Tata Teleservices Maharashtra limited (TTML) is included in this edition of Tonse MBI.
Sridhar Pai runs Tonse Telecom, a Bengaluru-based telecom research and consulting house that is a research partner to Light Reading India
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