Indebted Tata Teleservices, RCom stagger on different paths

In many ways Tata Teleservices (Tata Tele) and Reliance Communications (RCom) are confronted with the same problem — a burgeoning debt burden. Two of their prized assets that they can monetise to reduce the burden are also the same — their stakes in the tower business and their pan-India fibre optic backbone. 

But the telcos seem to be taking different paths to get out of their mess. Tata Tele is planning to look at the option of closing or winding down operations. But RCom wants to be a key 4G player, and has given a second alternative plan to reduce its debt to the lenders, as part of its debt restructuring programme, after its merger with Aircel was called off on Sunday. 

Tata Tele has to contend with a smaller debt exposure of over Rs 25,600 crore apart from a deferred payment liability of around Rs 8,000 crore. RCom has a bigger task of handling a debt of over Rs 45,000 crore and a deferred payment liability of Rs 7,000 crore for spectrum. 

However, both have stakes in tower businesses, which they can monetise. Tata Tele still has a 32 per cent stake in ATC Telecom Infrastructure (earlier known as Viom Networks), after it sold off 22 per cent stake last year to American Tower Corporation (which now has a 51 per cent stake). Based on its valuation of around Rs 21,000 crore (for 42,000 towers) when the sale happened, Tata Tele can sell its remaining stake for around Rs 6,720 crore, if it is sold at the same valuation. However, tower company executives say if Tata Tele, one of the tenants in ATC Infrastructure, moves out, the valuations could go down.   

RCom, of course, is better placed to leverage the tower business. It has a 100 per cent stake in its subsidiary, which is more or less similar in size with around 45,000 towers. But the valuation that suitor Brookfield had earlier promised (Rs 11,000 crore for a 51 per cent stake) to the company was based on the assumption that Aircel would be renting out the towers. 

The applecart has changed now, so the suitor is now revaluing the assets and would obviously offer a lower price. And RCom is open to even selling the entire stake in the business if needed. That is because the tower monetisation would be crucial for its plan to reduce the debt by Rs 25,000 crore by the end of December 2018. 

For Tata Tele, selling its tower stakes would not be enough to pay off its debts just like RCom. It has looked at various options earlier, which include selling their business to Airtel, infusing fresh equity from Tata group companies to the tune Rs 10,000 crore just to name a few. 

But, apart from the tower stakes, it also owns a valuable enterprise business, which analysts say is profitable and constitutes for over 30 per cent of the company’s revenues. In fact, the key reason why Bharti was looking at Tata Tele, say analysts, was this lucrative business where they are not very strong. Tata Tele could transfer this unit to Tata Communications at a certain value, or sell it off to a third-party telco. 

Tata Tele also controls one of the largest fibre networks in the country of over 125,000 kms, which it can monetise. After all, RCom is also looking at selling its 120,000-km domestic fibre network at a price tag of Rs 7,500 crore. There is no reason why Tata Tele cannot look at a similar price. 

The Tatas, of course, also have spectrum that they can sell or trade, but analysts say that this might not be as attractive. RCom, however, claims that the present value of its spectrum is over Rs 19,000 crore, which includes 800, 900, 1800 and 2100. In case of Tata Tele, it has 2.5 Mhz of spectrum in most circles, but this is expiring in a few years. For 4G to be launched in this spectrum, one needs a minimum of 5 MHz, so this would be of limited value to most of the telcos, analysts say, until they have a garage sale. 

Sure it has over 91.6 Mhz of spectrum in the 1800 band in as many as 18 circles, but the problem is that only 14.8 MHz can be used for services, including 4G. According to Bank of America Merrill Lynch, a telco would have to fork out over $1.8 billion to liberalise this spectrum — a pretty stiff bill. 

But the challenge Tata Tele also faces just like RCom is that it has been losing subscriber base consistently — from 6 per cent in FY16 to 4 per cent in FY17 and as low as 3.5 per cent in July 2017. That is more like RCom — its subscriber market share has fallen to 6.85 per cent in July this year compared to 8.46 per cent in last year in August. 

Also Tata Tele’s revenue share (based on Q4 2017 data) in nine circles was lower than 5 per cent. But experts say that it could wind down operations in phases and monetise or continue to run operations in some of the circles were it has a reasonable revenue share. That could also be attractive for a buyer. But that is an alternative, RCom has made it clear, it would not pursue, at least for now.

TALE OF TWO TELCOS

• Tata Tele has a debt of Rs 25,602 crore, while RCom has to pay debt of Rs 45,000 crore
• Both can monetise their stakes in the tower business – Tata Tele still has a 32% stake in ATC Infrastructure, while RCom owns 100% in its tower subsidiary
• The two telcos have a large optic fibre network that they can monetise 
• Tata Tele has 6% share of the total spectrum available, while RCom has slightly more at 8.2%