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April 10, 2006 5:56 pm

Tata sells mobile phone stake to Birla for $1bn

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Aditya Birla Group, the Indian conglomerate, has agreed to pay nearly $1bn to buy Tata Group’s stake in a mobile phone joint venture, bringing to an end a bitter dispute between the two groups.

Under the terms of the agreement, Birla will purchase Tata’s 48 per cent stake in Idea Cellular for $969m, raising its own equity in the country’s fifth-largest mobile provider to 98 per cent.

The purchase ends an increasingly acrimonious partnership that has seen the groups making accusations against each other over licence violations and abuse of competition regulations.

Tata has long indicated that it was keen to seek an exit from the joint venture since it operates competing CDMA-based cellular services through one of its subsidiaries, Tata Tele-services. Idea Cellular runs on the GSM platform.

“It makes business sense for Tata. They were not giving adequate emphasis to Idea,” said Kobita Desai, senior analyst with Gartner Research. “It was just a matter of time for them to move out of Idea.”

Indian regulations forbid a single company from holding more than a 10 per cent interest in more than one operator in any single telecoms district. Tata Tele-services and Idea each operate in 11 districts, and Birla has alleged competition abuses in seven of them.

For its part, Tata last month alleged licence breaches by Birla, issuing so-called “termination notices” that would lead to a buy-out of Birla’s 50 per cent stake in Idea. Birla plans eventually to sell off part of the purchased stake to financial investors and scale back its holding in Idea to 65 per cent.

Malaysia’s Maxis Communications had previously shown interest in picking up Tata’s share in Idea and could step forward to buy some equity from Birla, although its acquisition this year of Aircel, one of India’s smaller operators, might compromise such a deal. It picked up a 65 per cent stake in the Tamil Nadu-based carrier for $1.08bn.

Idea’s mobile subscriber base numbers about 7.4m, while Tata Tele-services has 4.5m.

India is home to the world’s most rapidly expanding large cellular market, with the number of users seen growing 30 per cent annually for the next five years. Currently, there are 90m mobile phone users in India.

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