India’s telcos join forces for influence

India’s telecoms have been shaken up with the might of Reliance Jio and its free services. The intense price war is forcing market players to consider consolidation to remain relevant in the game.

Reliance Jio network aims to cover 99 per cent of India’s population by the end of 2017. Dhiraj Singh / Bloomberg

MUMBAI // India’s telecoms industry is bracing itself for upheaval and a continuation of its bitter price wars over the coming months.

The new telecoms operator Reliance Jio, part of Reliance Industries, an oil-products conglomerate controlled by Mukesh Ambani, India’s richest man, was launched in September and has already had a huge impact on the sector.

“Reliance Jio has changed the landscape of the industry and forced the other leading players to react sooner rather than later,” says Tarun Bhatia, the managing director at Kroll, the risk management company.

Operators have been pushed into aggressive price wars because Jio has been attracting customers by offering free services, which continue until March 31.

Jio’s presence has resulted in the UK’s Vodafone and Idea, a Mumbai-based provider, looking to merge, with an announcement on the details of the merger expected to be unveiled in the next few weeks.

On Thursday, India’s number one player, Bharti Airtel, announced a plan to acquire Telenor’s India unit. Bharti said that it would buy the Norwegian company’s operations in six Indian states, where it has about 44 million subscribers.

There is such intense interest in the industry at the moment that rumours surfaced in the local Indian press a few days ago that Tata Teleservices was looking at joining forces with Reliance Communications (RCom), run by Mukesh’s brother, Anil Ambani, although RCom denied such talks had occurred. RCom already has plans to merge with another Indian mobile operator, Aircel, and in November 2015 it acquired Russian operator MTS.

India Ratings and Research, which is part of Fitch Group, in a research report published on February 16, said that the “telecom industry is likely to consolidate against hypercompetition” in the new financial year beginning this April. At the same time, it revised its outlook for the sector from “stable to negative”, citing its “expectation of longer and deeper-than-expected deterioration in the credit profile of telcos” caused by Jio.

Telecom companies’ revenues have been hit hard by Jio’s effect on tariff pricing.

Idea this month reported its first-ever quarterly loss, which amounted to 3.8 billion rupees (Dh209.4 million) in the quarter to the end of December compared with a 6.6bn rupee profit during the same period a year earlier.

“It’s certainly an interesting time for the industry,” says Harsh Tikku, the director of Softage Information Technology. He says that Jio has stormed into the market at “a scorching pace”, at one point adding a million subscribers a day. “There’s definitely going to be some major consolidation happening in the next few months – there are going to be less players than there are today.”

Jio has managed to amass 100 million subscribers since its launch, according to Mr Ambani. But even after its free services promotion ends next month, the price wars look set to continue, as Jio strives to retain its users. A number of Indians bought the Jio SIM card and are using it alongside their existing operator to simply take advantage of the free services.

Mr Ambani on Tuesday promised that Reliance Jio would undercut its competitors, providing at least 20 per cent more data to customers than its rivals. Its voice calls will continue to be free. Vodafone on Tuesday took its challenge to the Delhi high court, stating that Jio’s free voice calls violate the tariff rules set by India’s telecom regulator.

Reliance has invested more than US$20bn into Jio so far.

“Today, India is the number one country in the world for mobile data usage,” Mr Ambani said. “Jio users consume nearly as much mobile data as the entire United States of America and nearly 50 per cent more mobile data than all of China.”

He said that Jio plans to double its data capacity over the coming months to provide better quality services to its users and that by the end of this year it network will cover 99 per cent of India’s population.

“The Indian telecom sector has gained significant scale as a result of cheaper handsets and a decline in tariff rates,” says Srividya Kannan, the founder and director of Avaali Solutions, a consulting and technology implementation services company based in Bangalore. “The intense competition as a result is not only seeing significant improvement in service levels but also much lower tariffs.”

Data usage in India’s telecoms sector is expected to rise over the coming years, and it still has enormous scope for growth, experts say. A population of more than 1.2 billion that is young and an expanding middle class mean that the demographics are extremely favourable.

“Internet users have significantly risen by over seven times from 2010 until 2016, with close to 60 per cent accessing internet via mobiles,” says Ms Kannan. “While the user penetration is still low, our internet journey and consequently consumption of data services is just beginning. Over the next five years, the growth in internet users is likely to more than double.”

India Ratings forecasts that per-capita data usage should increase by about 35 to 40 per cent in the coming financial year.

“A decline in data tariffs by 20 to 30 per cent will pull down average revenue per user despite higher volumes coming from rise in data usage.”

Mergers “will be positive for the telecom industry by eliminating duplication of spectrum and infrastructure capex”, according to India Ratings.

Mr Bhatia says that “consolidation has long been anticipated in the industry. India is a very deeply penetrated telecom market and traditionally five to six players have competed in the sector. But in the recent past, the stronger companies with deeper pockets and aspirations have demonstrated their desire to acquire peers to strengthen their position in an extremely competitive environment.”

He says the Vodafone-Idea deal would be positive for both players.

“For Vodafone, it will make it the undisputed leader with approximately 40 per cent revenue share and nearly 380 million subscribers. For Idea, a deal like this brings tremendous shareholder value. However, despite consolidation, I expect the industry to remain intensely competitive over the coming years.”

Mr Tikku explains that while a positive of the changes in the industry is cheaper prices for consumer, a significant negative factor resulting from the consolidation taking place in the sector is the job cuts it results in.

“We’ve already seen job losses happening,” he says. And there are likely to be more to follow, he adds.

Meanwhile, analysts at India Ratings explain that they are waiting to see specific factors before they consider raising their rating on the telecoms industry.

“Stabilisation of the pricing would be key driver to revise the sector outlook back to stable. Return of pricing power or substantially higher data volumes are critical to generate the desired return on large investments made into the sector.”

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