Japan's NTT DoCoMo to buy up to 26 percent stake in Tata Teleservices

According to Japan's Nikkei Net Interactive website, the companies will announce the deal on Wednesday afternoon.

The website said DoCoMo will obtain about 20 percent stake in the form of new shares and purchase the remaining 6 percent stake from existing shareholders in the Indian company.

Meanwhile, Japan's Sankei newspaper said, without quoting sources, that DoCoMo plans to spend $1.5 billion to buy 25 percent stake in Tata Teleservices.

DoCoMo said in a statement it had not made any such decision while Tata Teleservices has refused to comment on the matter.

If the stake buy goes ahead, it will give DoCoMo veto power as, under Indian laws of acquisition, stakes exceeding 25 percent give shareholders such rights.

Company sources said DoCoMo was in talks with Tata Teleservices since September.

According to a DoCoMo spokesman, the Japanese company will send one of its executives to sit on the Tata board.

The deal comes at a time when top Indian mobile operators are vying to acquire rights for operating high-speed 3G services. Tata Teleservices, an affiliate of the $66 billion Tata Group, is India's sixth largest mobile services provider with around 30 million subscribers, after Bharti Airtel, Reliance Communications, Vodafone-Essar, Bharat Sanchar Nigam Ltd (BSNL) and Idea Cellular. Of these, only Reliance Communications operate on the CDMA-based network.

According to Shinji Moriyuki, a telecoms analyst at Mitsubishi UFJ Securities, DoCoMo's latest acquisition would be positive for the company, especially with its extensive knowledge of 3G network services to which many developing countries are now moving.

The acquisition, Moriyuki said, will give DoCoMo a foothold in India, the world's fastest growing market for mobile phone services and the second-largest market for such services after China, and the purchase will help DoCoMo, which is seeking to expand its overseas operations to offset slowing growth in Japan, improve its revenues.

"The company has shifted to developing countries with room for further growth. It's a good strategy," Moriyuki said.

"Both parties (DoCoMo and Tata) should be able to find synergies because of the current timing that 3G services are about to be launched," he said.

NTT DoCoMo is not the first foreign operator to enter India.

Last month, Norwegian telecom giant Telenor ASA said it would buy up to 60 percent stake in India's real estate major Unitech's start-up telecom arm, Unitech Wireless, for about $1.23 billion.

In September, another Indian telecoms start-up, Swan Telecom, which has licenses to operate in 13 service areas, sold a 45 percent stake to Emirates Telecommunications Corp for $900 million, giving Swan a $2 billion valuation.

Bharti Airtel, in which Singapore's top telecom firm SingTel owns about 30 percent, is India's biggest mobile operator (GSM platform) with a pan-Indian network service and enjoys about a quarter of market share. It competes with No.2 Reliance Communications (owned by Anil Dhirubhai Ambani Group) and unlisted Vodafone-Essar, controlled by Britain's Vodafone Plc.

Thanks to call rates of as low as one US cent a minute, availability of cheaper handsets and expansion of networks to smaller towns and rural areas, the Indian mobile market has leapfrogged the US to become the second largest (after China) and the world's fastest growing mobile market in the world. With Indian operators adding 8-9 million subscribers a month, at the end of October, the total number of mobile users stood at 326 million and research firm Gartner expects the number to touch 737 million by 2012.

According to market analysts, mobile users in India have jumped 25 times between 2002 and 2007, but the potential for growth remains huge as just 23 percent of the billion-plus population has a mobile phone. Though India's mobile revolution is mainly confined to the cities, the real prize for phone companies is the vast rural market, where nearly 70 percent of India's 1.1 billion population live.

Japan currently has some 105 million mobile subscribers, about 85 percent of the population. NTT DoCoMo is Japan's largest cellular carrier and its 54 million subscribers give it around 51 percent share of the market.

Tata Teleservices offers mobile and fixed-line phone connections and sells Richard Branson's Virgin Mobile services in India. Market sources said Tata Teleservices, which is unlisted, was seeking recently for fresh infusion of funds to help fund its plans to invest in its networks before new competitors begin operating in India.