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February 27, 2006 5:54 pm

India moguls in telecoms dispute

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Ratan Tata and Kumar Mangalam Birla, two of India’s best-known business leaders, are under pressure to intervene personally to repair a deepening and embarrassing dispute between the conglomerates they lead.

The conflict has arisen over Idea Cellular, the telecom services company owned jointly by the conglomerates. Aditya Birla, a Mumbai-based commodities group, has claimed its partner in the venture has displayed “impermissible and multiple non-compliance of competition rules”. Tata denies the accusation.

But analysts say the attack by Aditya Birla, which indirectly owns a 50.15 per cent stake in Idea, is designed to raise pressure on Tata to sell its 48 per cent stake in the company – ideally to its long-time partner.

The Birla accusation emerged this month in leaked letters to the country’s department of telecoms. It coincides with intense interest by foreign investors in India’s telecoms market.

Vodafone’s recent decision to pay $1.5bn for a 10 per cent stake in market leader Bharti Tele-services set a benchmark for telecoms assets in India.

Tata has retained, via a group unit, its “financial” stake in Idea, which operates a cellular service based on the GSM communications standard that has a market share of 8.42 per cent. Tata’s strategic commitment to telecoms, however, is via its closely held Tata Tele-Services, which uses the CDMA standard and has a 5.08 per cent market share.

At issue is India’s unified licence policy that forbids any entity from owning more than
10 per cent of more than one operator in any single telecoms “circle”, or regional market.

Birla contends that recent licences won by Tata Tele-Services overlap with circles in which Idea operates, presenting “multiple competition issues”. Tata denies this charge.

Observers say what also irks Birla is that Tata’s status as financial investor gives it a board seat and access to Idea’s strategies in circles where Tata Tele-Services is a rival.

A Tata official described this as a “shareholder issue” that could be resolved by the replacement of common directors on the boards of Idea and Tata Tele-Services.

Birla also argues that Tata failed to disclose until last week its purchase last year of a 16.45 per cent stake in Idea, raising its share to 48 per cent.

The dispute marks another episode in the uncertainty that has hung over Idea since it was formed in 2002 as a venture of Birla, AT&T of the US and Tata. AT&T later exited Asia and was absorbed by Cingular Wireless.

Some of the cloud appeared to have vanished when Birla bought half of Cingular’s stake last year, reaffirming its desire to build its telecom interests.

Tata insists it is open to selling its stake but “we will not be squeezed out by selling gold for the price of lead, which appears to be the purpose of this attack”.

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