Tata & Birla merge cellular operations, rope in AT&T - Views on News from Equitymaster

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  • Mar 2, 2000 - Tata & Birla merge cellular operations, rope in AT&T

Tata & Birla merge cellular operations, rope in AT&T

Mar 2, 2000

The Tatas and Birlas have decided to merge their cellular telephony ventures in the process creating a US$ 1 bn giant with a subscriber base exceeding 150,000. The new venture will have AT&T as a third partner. The Tata venture, with AIG as partner, operates in the Andhra Pradesh circle. The Birla AT&T combine has been operating in Maharashtra, Goa and Gujarat.

The Indian cellular telephony sector has been faced with many hurdles in the past as a result of which the anticipated growth in subscriber base failed to materialise. Among these were the high license fee (which delayed the roll out of services and resulted in high usage rates) and high import duties on handsets (inflated hardware cost). Both these factors contributed to the exorbitant cost of usage. As a result of this the pick up in demand for cellular services was much below expected levels. This merger is the latest in a series of deals announced in the telecom sector.

The benefits of merging an operation are numerous. The merged entity will have a wide area of operation that extends from Andhra in the South to Gujarat in the West. This would present it with opportunities to exploit economies of scale and scope apart from the enhanced financial muscle it would command. The first of these factors would make the operations more profitable while the second opens the doors to more acquisitions in the future.

The need for consolidation in the telecom sector has been felt by many. Whether the government will be a facilitator to such deals as yet remains to be seen.

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