Tata Tele may merge with Sistema's MTS

Dylan Bushell-Embling
26 Jun 2013

India's Tata Teleservices is reportedly in advanced talks regarding the sale of a substantial stake to Russia's Sistema, which operates the MTS brand in India.

The scenario being discussed involves Japan's NTT DoCoMo exiting its 26% stake in Tata Teleservices by selling the stake to Sistema, two sources told the Economic Times.

Tata Group would also sell part of its stake in Tata Teleservices, and reportedly favors Sistema owning a majority or controlling stake in the combined company.

Tata Teleservices and DoCoMo jointly operate the Tata DoCoMo brand in India. DoCoMo bought its 26% stake in Tata Teleservices in 2008 for around $2.7 billion, and had intended to raise this stake before the 2G license allocation scandal rocked the sector.

Tata Teleservices is now laden with debt and unprofitable, and Tata Group has reportedly cut off funding, leaving the company to shut up shop in some of India's telecom circles.

Sistema's Indian JV – Sistema Shyam - was meanwhile dealt a blow in 2010 with the cancellation of 21 of its 22 mobile operating licenses following the 2G scandal, but unlike some international players has shown signs it is sticking in for the long haul.

The company was the sole bidder for 2G licenses in the second-round auction to reallocate the spectrum, agreeing to pay $665 million for 2G spectrum in eight circles.

Industry watchers have been predicting a wave of consolidation in India's overcrowded mobile sector for years. But one factor that could stand in the way of a Tata-Sistema merger is the regulatory regime governing mobile mergers.

Current regulatory norms could force Sistema to surrender or pay market price for Tata Teleservices' spectrum holdings if it becomes a majority owner in the venture, which may make the deal less attractive.

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