Tata Teleservices Limited (TTSL) today announced that it had executed agreements with Hughes Network Systems (HNS), the Ispat Industries and Alltel Corporation, the principal promoters of Hughes Telecom (India) Limited (HTIL), to acquire 50.83 per cent of the paid-up equity capital of HTIL from the HTIL sonsors.

The acquisition would be subject to the necessary statutory / regulatory approvals and is expected to conclude in early October. A public announcement under the SEBI takeover code would be made within the prescribed time.

Welcoming the acquisition, Tata Sons chairman, Ratan N Tata, said, "The acquisition of HTILs services in Maharashtra, which includes Mumbai, will enable speedier implementation of the groups plans to provide world-class telecom services to the Indian consumer."

The Tata Groups acquisition of HTIL is the latest evidence of its ambitious plans in Indias high-growth telecom industry, where revenues are expected to increase more than three-fold this decade -- from
Rs 40,000 crore currently to over Rs 125,000 crore by 2010. The group had earlier acquired VSNL in February this year and, in 2001, merged its cellular operations with Birla AT&T to create BTAL. The group has already spent over Rs 6,500 crore($ 1.3 bn) on its telecom projects and has committed to spend over Rs 10,000 crore ($ 2 bn), making it the second largest investor in telecom after the government behemoths, BSNL and MTNL. The groups ambitions in telecom straddle the entire range of telecom services international and national long-distance (through VSNL), basic services including limited mobility, value-added services and Internet (through TTSL, Tata Internet Services and VSNL), and cellular services (through Idea Cellular, earlier known as BTAL).

As consideration for the acquisition of 71.43 crore equity shares of HTIL, TTSL will issue 71.43 crore redeemable non-cumulative convertible preference shares (RPS) of TTSL in favour of the HTIL sponsors. These RPSs have a face value of Rs 10 and carry an interest coupon of 0.1 per cent and are redeemable either at the end of 51 months at a price of Rs 8 and or at the end of 75 months at a price of Rs 10. Tata Sons has provided a put option for the redemption of the RPSs.

Separately, HTIL will be restructuring the debt owed by HTIL to HNS. Part of the debt owed by HTIL to HNS will be rescheduled as long-term debt. Also, HNS will partially transfer its HTIL receivables to TTSL in exchange for RPSs and warrants of TTSL. DSP Merrill Lynch acted as sole advisors to the Tatas on the transaction and ICICI securities acted as advisors to HNS.

TTSL will also be making an open offer for a further 20 per cent of HTILs equity from its other shareholders. The offer will be made at HTILs six-month average price since the consideration paid to HTILs shareholders in the form of RPSs has a net present value which is less than HTILs six-month average price. Going forward, TTSL intends to realign and restructure the debt profile of HTIL to provide funds required for the Maharashtra Circle at more favourable rates of interest. TTSL would also implement CDMA technology to enable HTILs customers to have limited mobility through wireless in local loop (WiLL) and other value-added services.

Tata Teleservices is the Tata Groups vehicle for basic services. HTILs acquisition is an important milestone in TTSLs plans to have a pan-India presence and to invest around Rs 9,000 cr in the next four years to achieve a subscriber base of 3 million by 2006. With the acquisition of HTILs 170,000 subscribers, including 120,000 subscribers in Mumbai, TTSL acquires an immediate presence in Maharashtra rather than entering Maharashtra as a competitor to HTIL and building up its presence over several years.

After the acquisition of Maharashtra, TTSLs operations will comprise six category A telecom circles (Andhra, Karnataka, Tamil Nadu, Gujarat, Delhi and Maharashtra, including Mumbai). These circles currently comprise 56 per cent of Indias subscriber base and 65 per cent of the countrys telecom revenues.

Hughes Network remains committed to India with an established and growing presence and interests in communication software development and services and broadband communication services over satellite. India continues to remain a critical and important part of Hughess global business plans. Its decision to divest its stake in HTIL in favour of TTSL, made in the best interests of the company and its stakeholders, is in continuation of its plan to focus on the satellite broadband market in India in line with its worldwide focus.

Hughes currently provides communication services to over 650 cities and towns in India and satellite broadband services to 39 of Indias top 50 brands. In March 2002, Hughes had launched its nation-wide Direcway satellite broadband services and announced the establishment of the Spaceway software applications development centre in Bangalore. The launch of its $ 2 bn Spaceway satellite access and services platform is scheduled for early 2003 in North America and in Asia in the following year.