Financial Daily from THE HINDU group of publications
Wednesday, Jan 16, 2002
Alliances & Joint Ventures
Corporate - Alliances & Joint Ventures
Industry & Economy - Telecommunications
Tatas, Hughes call off talks for basic merger
THE Tatas and the Hughes group that had announced in early August last that they were considering an alliance in basic telephony services, today said they have called off talks.
Hughes Network Systems, shareholder in Hughes Tele.com, and Tata Industries Ltd, shareholder in Tata Teleservices, announced they are "disengaging from discussions on the combination of the basic telephony services in the circles of Maharashtra and Andhra Pradesh."
"Basically we could not agree on the valuation of each other's companies and the exchange ratio," said an official associated with one of the parties. "Any other matter or differences were quite subsidiary."
At the time of the signing of the memorandum of understanding by the two parties, analysts had noted it was the first move by major players towards consolidation in basic services. With these two players coming together, they felt, the resulting company would have made for a sizable competitor to the Reliance group's 17-circle presence in basic telephony.
The MoU was only for exploring an alliance for the circles of Maharashtra (Hughes Tele.com's circle) and Andhra Pradesh (Tata Teleservices' circle).
But Tata Teleservices has licence agreements for four more circles - Delhi, Gujarat, Tamil Nadu and Karnataka - out of the 15 (including Maharashtra) for which it has letters of intent. This, analysts felt, would have worked eventually to the advantage of the alliance, should it have happened. In that case, Tata Teleservices would not have required to convert its Maharashtra licence either, analysts had said.
Both the players had then said they would have the advantage of size and could use each other's infrastructure. Both the players are laying optical fibre networks in their respective circles of operation.
"Today, Reliance is the big giant left in basic telephony with only the Tatas poised in theory to give it any competition," said a telecom analyst who did not wish to be quoted. "Given the fact that basic services are rolling out limited mobility services, it would make for a big advantage for Reliance."
Tata Teleservices has over one-lakh subscribers in Andhra Pradesh; it has targeted three lakh subscribers over the next two years. Hughes Tele.com has around 1,20,000 customers in Maharashtra and had a target of two lakh customers for before March, 2002.
"There could have been many advantages had this alliance worked out," said an official with one of the two groups.
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