DoT to object to Tata Communication setup of two new subsidiaries?

5 Oct 2011

Plans by India’s Tata Communications to set up subsidiaries in Malaysia and New Zealand look set to be opposed by the Department of Telecommunications (DoT), reports. Citing a draft letter from the regulator destined for the telco that it had obtained, the news source claims that the DoT has raised a number of issues regarding such expansion plans. Notably, the regulator claims that Tata Communications’ fund position is not healthy due to high interest costs of around INR5.17 billion (USD103 million), while it has also argued that the growth of the telecoms sectors in both of the countries mooted for investment is slower than those of other developing nations. ‘There is need to analyse performance of existing telecom companies in these countries with reference to their existing capital investment, IRR (internal rates of return), and market share,’ the communication reportedly noted.

According to TeleGeography’s GlobalComms Database, the Government of India holds a 26.12% stake in Tata Communications, and the DoT’s draft letter reportedly argues that a number of the telco’s foreign subsidiaries are denting its profitability. The letter pointed to South Africa and Sri Lanka in particular as having dragged the company to a consolidated loss of INR7.77 billion in the 2010/11 financial year, prompting the regulator to note: ‘Considering this, the company may be advised to carry out a thorough review of the performance of the subsidiaries and reconsider its proposal with available alternatives.’ The draft letter meanwhile has called on Tata Communications to provide more details regarding its source of funding, the market conditions in the two countries in question and the financial position of potential competitors.