Mumbai: The shakeout in mobile telecom continued as the Tata Group quit the highly competitive sector after nearly 15 years, merging its loss-making consumer mobile business, consisting of Tata Teleservices Ltd and Tata Teleservices Maharashtra Ltd, with Bharti Airtel.

The struggling venture is saddled with debt of over Rs40,000 crore, but the Tatas will clear past liabilities and dues as part of the deal. It highlights the rapid consolidation in the sector after the aggressive launch of services by Mukesh Ambani's Reliance Jio in September last year.

It follows on the heels of Vodafone and Idea - the second and third largest telecom companies respectively - agreeing to merge to become No. 1 with a combined subscriber base of over 400 million, overtaking Airtel.

Airtel, for which this is the seventh acquisition in five years, will gain access to around 180 MHz of spectrum spread across 850 MHz, 1800 MHz, and 2100 MHz bands. Importantly, it will add Tata's nearly 40 million mobile subscribers to its own base of 280 million customers, taking it comfortably past the 300-million mark.

"The merger is on a debtfree and cash-free basis," the companies said in a statement. In effect, Bharti will get the Tata consumer mobile business virtually for free.

Airtel, however, will have to assume a portion of Tata's unpaid spectrum payment liability, which is estimated to be Rs2,000 crore, but has to be paid on a deferred basis.

"We believe today's agreement is the best and most optimal solution for the Tata Group and its stakeholders. Finding the right home for our longstanding customers and our employees has been the priority for us," Tata Sons chairman N. Chandrasekaran said.

"We have evaluated multiple options and are pleased to have this agreement with Bharti." Bharti Airtel chairman Sunil Mittal said the deal marks further consolidation in the Indian mobile industry.

"On completion, the proposed acquisition will undergo seamless integration, both on the customer as well as the network side, and further strengthen our market position in several key circles," he said, adding that addition of Tata's spectrum makes "an attractive business proposition."

Tata Group is now in the initial stages of exploring a combination of its enterprise business with Tata Communications and its retail fixed line and broadband business with Tata Sky.

It is, however, believed that the deal marks the beginning of a growing relationship between the two corporates which could span businesses such as DTH, enterprise and undersea cable. The joint statement from the companies made a reference to this, "Tata and Airtel will work together to further explore other areas of cooperation, that will be value accretive for both groups."

The sale of the ailing consumer mobile services is the second major transaction during Chandrasekaran's leadership of Tata Sons. Last month Tata Steel agreed to merge its struggling European business with Germany's Thyssenkrupp. Since taking charge at the helm of the conglomerate in February, Chandrasekaran's immediate priorities have been finding solutions for problematic businesses such as Tata Teleservices, Tata Steel Europe, and Tata Motors India. Cutting down group's over $26 billion debt is another key focus area.

The deal with Airtel is subject to regulatory approvals and Tata officials hope that it will be completed within this fiscal. The Tata Group entered the mobile services business in the early 2000s through Tata Cellular, which was based on GSM technology. It later exited this business to focus on Tata Teleservices, which was on the CDMA technology platform. Tata Group had previously also explored option of shutting down the unit. However, it finally found it best to find a nest for the business rather than closing it down as the latter has huge ramifications on business ecosystem.

Besides, the sale option helps the group to save at least Rs 8,000 crore. In the past, the group is understood to have held talks with Vodafone for a possible deal. Mounting losses in Tata Teleservices and heavy interest pay-out prompted the group to exit the business. Besides, partner NTT DoCoMo too decided to pull the plug from Tata Teleservices. Officials said that the group was not left with many options in view of tough competition and heavy investments. Tata Group is believed to have invested at least Rs 50,000 crore in the mobile services business.