Telecom play: Did Ratan, not Mistry, make wrong calls?

Rashmi Pratap Mumbai | Updated on January 27, 2018 Published on November 03, 2016

tata Indicom


The Tatas paid the price for adopting CDMA technology

Some time in the late 1990s, the Tatas owned 48 per cent of a telecom company, which was just beginning to grow in the mobile industry, then dominated by Airtel and Hutch (now Vodafone). This GSM venture was called Batata (Birla-AT&T and Tata) and it would have taken Tatas to the No.3 slot in the Indian telecom pecking order had they stayed invested in it.

Instead, Tatas’ telecom strategy has reduced it to one of weakest players in the sector. Former Tata Teleservices executives say that some of the decisions taken by Ratan Tata boomeranged.

“Ratan Tata was enamoured of the CDMA technology and sold the group’s 48.18 per cent stake at ₹40.51 per share to the AV Birla Group companies. Batata went on to become Idea Cellular, India’s third-biggest operator by revenue, while CDMA-based Tata Teleservices has been a laggard ever since inception,” said a former Tata Tele executive.

TTSL has never booked profits in its history. And former Tata group chairman Cyrus Mistry, to an extent, paid the price for this choice made by the group nearly one-and-a-half decade ago.

“From Day One, Tatas got it all wrong in terms of the technology. The venture was doomed from the start,” says BK Syngal, telecom consultant and former CMD of VSNL (now Tata Communications).

CDMA had inherent disadvantages, the biggest being that a user could not roam on any other network. Even Reliance and Tatas, which both offered CDMA technology, could not use each others’ networks for roaming. And international roaming was ruled out. “So, TTSL could never attract high-end users. It just roped in low-end subscribers that brought minimal revenues,” he says.

TTSL also had to pay royalty on handsets, about 7 per cent in 2006, to US-based Qualcomm, the licensor of the CDMA mobile phone standard. That was an expense GSM operators didn’t have to incur. “On paper, CDMA looked a superior technology, but had inherent disadvantages,” says Jayath Kolla, partner and founder of Convergence Catalyst.

While GSM was pushed by the GSM Association, CDMA was backed only by Qualcomm, a profit-oriented company. And when giants like Telstra in Australia and Vivo in Brazil were exiting CDMA, Tatas brought in NTT DoCoMo to start GSM-based services. The Japanese giant invested $2.2 billion in TTSL at ₹117 per share in 2009. Today, the two partners are at loggerheads: DoCoMo has sued Tata Sons in a US court for recovering $1.17 billion.

Why could DoCoMo not change the fortunes of TTSL despite moving to a favourable technology? “Tata Teleservices was adversely impacted by a lack of speed and agility in terms of decision making, especially compared to what was required by a fast-changing technology industry such as mobile communication,” says Kolla.

Former executives also point out that DoCoMo’s teams, which flew down to India to help launch new products, could not do much due to the bureaucratic decision-making at TTSL.

A big blunder

Syngal feels that getting out of Batata and starting all over again with a new technology was a blunder. “Had they (the Tatas) stayed put, it would have been a different story altogether. Idea has come a long way since then,” he says.

For now, Mistry is being blamed for the Tata-DoCoMo fiasco. But the reality is that the seeds for this failed venture were sown long back when Tatas made some real wrong calls.

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Published on November 03, 2016
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