 "Tata's telecom venture: A call that went wrong")
In Tata Teleservices, Ratan Tata’s decision to enter the all-new world of CDMA (Code Division Multiple Access) technology-based mobile telephony in 2003 while getting out of Idea Cellular, a GSM-based telecom operator, has hurt the company. Idea Cellular is now India’s third largest telecom company. The Tatas sold their 48.12 per cent stake to their joint venture partner Aditya Birla group in 2006.
The rest is history as Idea Cellular went on to grow leaps and bounds to find its place after Bharti Airtel and Vodafone in terms of subscribers and revenues, while Tata Teleservices (TTSL) is struggling to build scale and is losing money every year.
Tata Teleservices with its listed subsidiary — Tata Teleservices (Maharashtra) reported net loss of Rs 3,884 crore during 2015-16, down from Rs 4,461 crore a year ago. In all, the company has now lost a total sum of Rs 43,000 crore since 2003, when it launched mobile services under Tata Indicom brand.
The near to medium term outlook looks uncertain given the pressure on margins and volumes due to the launch of Reliance Jio.
On paper, CDMA offered some advantages over the older but well established GSM technology. The underlying spectrum was cheap and is more efficient than the latter. Analysts, however, say that the advantages were short-lived. CDMA was a proprietary technology developed by US-based Qualcomm and it used to charge royalty from operators for every handset sold by them to their customers. It raised the cost of handsets besides reducing the choice for customers.
In comparison, GSM is an open-source technology standard owned by GSM Association and GSM handsets were directly sold by manufacturers in the open market. GSM customers were free to swap one operator for other without changing their device unlike CDMA where devices were tied to operators.
Unlike GSM, CDMA didn’t offer the convenience of inter-operator roaming further reducing its attractiveness for consumers used to the convenience of GSM platform.
This was especially true of high-end users and Tata Teleservices largely attracted bottom of the pyramid consumers, which restricted its revenues and operating margins. This had a bearing on Indicom brand and it never caught the imagination of customers.
On the brighter side, TTSL reported operating profit in last two years after four consecutive years of losses. This is largely the result on cost cutting. Company has an opportunity to build on this by pushing the growth button. Can it?
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