VCCircle

Idea Cellular has come a long way since it business origins in 1995 when it was incorporated as Birla Communications. From a single promoter owned company it struck joint venture and acquisition deals and even merged with other telcos to bring on board other partners and then eventually became a Birla Group company again in 2006.
However, the journey included a number of twists and turns among those a particularly acrimonious split with another business group the Tatas who tended to put their eggs in two different baskets with their independent launch of CDMA-based telecom services.

EARLY YEARS:

Lets rewind to 1995 when the firm promoted by the AV Birla Group obtained licenses for providing GSM-based telecom services in the Gujarat and Maharashtra Circles. This was as part of the original bidding process for GSM license in the country.

The following year it changed its name to Birla AT&T Communications which followed a JV between Group firm Grasim and US-based telecom giant AT&T Corporation. Actual operations however started in the two circles for which it obtained licences in 1997.

The next three years witnessed the shaping up of the telecom policy in the country. It was also a period which was just at the cusp of a major revolution in wireless communication. The market started picking up by 2000 around the same time that the firm merged with Tata Cellular which brought on board Tatas in the venture and also acquired a license for the Andhra Pradesh circle.

ACQUISITION STRATEGY UNFOLDS

The inorganic growth strategy continued in the following year when the firm acquired RPG Cellular which also brought along the operators license for the Madhya Pradesh (including Chattisgarh) circle. Around this time the firm's name also changed to Birla Tata AT&T or Batata, as it was more popularly known as. As Batata it also obtained the license for providing GSM-based services in the lucrative Delhi circle.

The Idea Cellular as we know today took birth in 2002 which also led to the umbrella consumer branding of 'Idea'. This year the firm crossed the milestone of a million subscriber in the country.

However the firm first got a true national presence with the acquisition of Escotel in 2004 which gave it a presence covering Maharashtra (excluding Mumbai), Goa, Gujarat, Andhra Pradesh, Madhya Pradesh, Chattisgarh, Uttar Pradesh (East and West), Haryana, Kerala, Rajasthan and Delhi NCR. It also completed a major debt restructuring exercise and got additional funding for expansion in the Delhi circle.

AT&T EXITS

This year was also significant for another reason as it saw the exit of AT&T from the JV. Till then the three partners AV Birla, Tatas and AT&T held around 33 per cent stake each. After AT&T merged with Cingular in the US in 2004, it decided to sell its 32.9% stake in Idea.

Initially there were many suitors for this stake including Telekom Malaysia, which now gets an entry into Idea after the Spice Communication deal, and Maxis( which is now invested in another telco Aircell). Eventually AT&T's stake was bought over by the other existing promoters: the Tatas and Birlas at 16.45% each, who ineffect became equal equity JV partners in Idea.

WHAT A MISS FOR TELEKOM MALAYSIA

They shelled out Rs 1,300 crore for the 32.9 per cent stake which valued the firm at around Rs 4,000 crore. The valuation appreciation can be gauged by the fact that Telekom Malaysia is now forking out more than Rs 7,000 crore for a 15 per cent stake through a preferential allotment, which values Idea at around $10 billion translating into value appreciation of ten times or 900 per cent gain in less than four years.

BIRLA-TATA DUEL

The Birla-Tata partnership turned for the worse after buying out AT&T. This was because Tatas entered the telecom business separately through its own subsidiary, Tata Indicom, which was a CDMA-based service provider. Given this move the license for Mumbai circle for Idea was delayed and led to further difference of opinion between two of the most prominent business groups in the country. This was because as per the sector license norms, one promoter could not have more than 10 per cent stake in two companies operating in the same circle. Since Tata Indicom was already operating in Mumbai the norms did not allow Idea to get a license.

After months of an acrimonious dispute over the conflict of interest of Tatas which had interest in two competing firms, the partners came to an agreement to sell out. The Tatas finally sold out their 48.18 per cent to Birlas in 2006 at Rs 40.51 a share which translated into a deal worth Rs 4,406 crore, valuing the firm at around Rs 9,000 crore. In the meantime the firm turned profitable in 2005 which explained a sharp premium for the equity stake given that the firm's valuation doubled in just one year from the time AT&T sold its stake.

While 15 per cent of the 48.18 per cent this was acquired by Aditya Birla Nuvo, a company which housed the new business initiatives of the Birlas, other group firms held the remaining stake.

LIFE AFTER TATAS

During 2006, Idea also acquired Escorts Telecommunications, reached the milestone of 10 million subscribers, received the license for Mumbai circle and indirectly received the license for the Bihar circle through merger of Aditya Birla Telecom with Idea. Aditya Birla Nuvo which owned Aditya Birla Telecom apart from being one of the key shareholders of Idea, transferred its entire shareholding in the firm to Idea for Rs 10 crore.

The clarity over promoter ownership- following exit of Tatas- and with a pan India presence, Idea went public with an IPO raising Rs 2,818.7 crore.

Today Idea Cellular has close to 26 million subscribers and closed last financial year with net sales of Rs 6,720 crore($1.6 billion) and net profit of Rs 1,042.3 crore($240 million). Though it has fallen behind other key players in the industry like Bharti, Vodafone and Reliance who entered the sector either at the same time or much after Idea, the business has grown in size and has a market cap of around Rs 26,887 crore or $ 6.4 billion.