DoCoMo spends $2.7bn on Indian takeaway

Japanese operator NTT DoCoMo struck a deal Wednesday to acquire 26 per cent of India’s sixth largest cellco, Tata Teleservices, for $2.7bn.

In addition, DoCoMo said it also expects to make a further offer for up to 20 per cent of the outstanding common shares of Tata Teleservices Maharashtra.

The move will give DoCoMo, which has long shied away from sizeable overseas investments in the wake of its unsuccessful export of the i-mode platform, a foothold in the fast growing Indian market.

Tata covers all of India’s operating circles with wireless networks and also owns a large number of retail stores. The carrier’s subscriber base currently exceeds 30 million.

India is growing at a staggering rate. It is the second most populous country in the world and is expected – if current growth trends continue – to overtake China before the middle of this century. And it is a youthful country; of the estimated 1.14 billion people living in India at present, some 40 per cent are under 15 years of age and 54 per cent are under 24. The median age is 25.

The economy is diverse, though characterised at the moment by a booming services sector, boosted in no small part by the ranks of firms from ‘developed’ markets taking advantage of the cost savings associated with outsourcing and off-shoring certain of their operations to the subcontinent.

The economic strength of India and Indians is undoubtedly on an upward curve, although ARPU is low by Western standards, ranging from $4.60-$8.90 per month according to Informa Telecoms & Media’s World Cellular Information Service. Falling ARPU figures in India, are compensated by surging growth though. Penetration has more than doubled since June 2006 and stood at 21.67 per cent in March this year. With 242 million mobile phone subscribers nationwide there is plenty more scope for growth.

Earlier this year Virgin Mobile launched services in India through a joint venture with Tata. The deal does not follow Virgin’s typical 50/50 joint venture MVNO strategy, as virtual operators are currently against regulations in India. Instead, Virgin is offering services as a brand extension with the CDMA operator.

The technology fit with DoCoMo, which is a WCDMA player, may also raise some questions. Although India is set to auction 3G licences in January next year.