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DoCoMo enters India with $2.7 bn Tata deal

NTT DoCoMo will pay $2.7 billion for a 26 per cent stake in Indian telecom Tata Teleservices.

By: Reuters | New Delhi |
November 12, 2008 4:24:46 pm

NTT DoCoMo will pay $2.7 billion for a 26 per cent stake in Indian telecom Tata Teleservices, giving Japan’s top mobile operator a foothold in the world’s fastest-growing major mobile market.

DoCoMo’s deal with Tata Teleservices follows a $350 million investment in Bangladesh’s No.3 cellphone carrier, as it speeds up its expansion beyond a mature home market, and adds to the record $63 billion of overseas acquisitions by Japanese firms this year.

But as DoCoMo expands, salt-to-software conglomerate Tata Group — the parent of unlisted Tata Teleservices and the flagbearer for corporate India’s recent overseas expansion — has put its plans for acquisitions on hold due to the global credit crisis. DoCoMo will also make an open joint tender offer with Tata Sons, the holding firm of the group, to buy up to 20 per cent in a listed unit of India’s No. 6 mobile operator, as required by Indian law.

Ahead of the announcement, shares in the unit, Tata Teleservices (Maharashtra), closed up 7.6 per cent in a Mumbai market that fell 3.1 per cent while shares in DoCoMo ended up 1.3 per cent in a Tokyo market down more than 1 per cent.

DoCoMo did not rule out the possibility of taking a majority stake in Tata Tele in the future.

Shinji Moriyuki, a telecoms analyst at Mitsubishi UFJ Securities, said DoCoMo’s recent acquisitions in Asia would be positive, especially with the company’s extensive knowledge of third-generation (3G) network services to which many developing countries are now moving.

“Many people have voiced concerns because of its overseas investment spree in the early 2000s and failures afterward, but business conditions are totally different now,” Moriyuki said.

“This time, the acquisition value should not be too large because of sluggish stock markets, it can count on growth in developing markets, and both parties should be able to find synergies because of the current timing that 3G services are about to be launched.”

POTENTIAL

India is the world’s second-biggest mobile market, trailing only China. More than 10 million users signed up in September, taking the total customer base to 315.3 million, more than the population of the United States, and almost three times the size of Japan’s market of 109 million subscribers.

Researcher Gartner forecasts India’s mobile user base will more than double to 737 million by 2012, as just over a quarter of India’s 1.1 billion population currently own mobile phones compared with a penetration level of about 85 per cent in Japan.

DoCoMo will face tough competition though, as foreign firms such as Telenor, Etisalat and Sistema are gearing up to start services in India, where currently home-grown Bharti Airtel and Reliance Communications dominate along with a Vodafone unit.

Carriers in India at the moment provide only 2G services. A global auction of radio waves for 3G and 4G wireless services, which provide more advanced mobile services including video, is due in January.

Foreign firms can buy up to 74 per cent in Indian telcos, but Tata Group normally holds majority stakes in all its core businesses.

DOCOMO EXPANDS, TATA PAUSES

The DoCoMo deal comes a day after Japanese chemical maker Mitsubishi Rayon announced a $1.6 billion acquisition of British rival Lucite International. Earlier this year No.3 drug maker Daiichi Sankyo forged a $4.6 billion deal for a controlling stake in Ranbaxy.

DoCoMo spent nearly 1.9 trillion yen in the late 1990s and early 2000s on small stakes in operators around the world to promote use of its i-mode mobile Internet technology and ensure the adoption of 3G networks on the same W-CDMA standard it uses.

But it saw its investments sour, and pulled out of AT&T Wireless Services Inc, Dutch operator KPN Mobile N.V. and Hutchison 3G UK Holdings after incurring heavy losses.

The Tata Group, which splashed out an Indian record of $13 billion for steelmaker Corus in 2007 and this year bought Jaguar and Land Rover $2.3 billion, has put further acquisitions on hold due to the credit crunch.

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