In the first consolidation move in the basic telephony industry, Tata Teleservices and Hughes Tele.com signed a memorandum of understanding on 8 August 2001, to merge their basic telephony operations.

The enterprise value of the merged entity, based on the two firms’ business earnings and total investments, has been valued at $1 billion. Independent valuers would soon be appointed to finalise the share-swap ratio. The MoU is subject to approval of the boards of the two companies and regulatory approvals, including that from the Department of Telecommunications.

The other equity partners in the venture would be Hughes Networks, the Ispat group and Alltel Corporation. The Tata group would be the single largest shareholder in the merged entity that covers the Andhra Pradesh and Maharashtra circles, with a subscriber base of over 1.6 lakh.

Meanwhile, it is not yet clear whether the Tatas plan to expand their basic telecom operations through the merged entity or through any other group company. Tata Teleservices had earlier proposed to invest Rs.8,000 crore in 7-8 new basic circles over a period of three years.