We are of the opinion that the Tata Group’s telecom assets is needed to maximise synergies and enhance shareholder value. The group has all the pieces to create a single telecom entity – Tata Teleservices Maharashtra (TTML) and Tata Teleservices in wireless [GSM + CDMA] and fixed-line telecom, Tata Sky in DTH, and Tata Communications in wholesale voice. Its fragmented approach makes it tough for the group to compete with companies like Reliance Communications and Bharti, in our view.

For instance, lets consider the business case of Wireless Broadband by WiMax in which Tata Communications has taken a half hearted approach. Bharti Airtel after their announcement of managed services deal with Alcatel-Lucent are suggesting focus on the broadband business. Post this outsourcing arrangement we expect them to participate in Wimax auctions as they have more flexibility to deploy various technologies. Further the distribution structure in case of WiMax will be close to the structure for Direct to Home business and we believe that Bharti, already having presence in the DTH segment, will be better placed.

Aggressive WiMax participation will further stretch TCOM’s balance sheet; we’re also concerned about its ability to scale up retail infrastructure. Besides WiMax, pricing pressure in the data business and flat volumes in the voice business drive our cautious view.