Indian telcom sector has shrunk to four at the end of bitter price wars

Entry of Mukesh Ambani's Reliance Jio upset the status quo of what was once a over crowded sector in the country

Commuters use their mobile phones as they wait at a bus stop with an advertisement of Reliance Industries' Jio telecoms unit, in Mumbai, India. Shailesh Andrade/Reuters

India's telecom sector will enter the new year completely transformed with the four remaining major operators looking to revive revenues to solidify their position in Asia's second-biggest economy.

The country's telecom industry has been through a though time this year, as intense competition has led to aggressive price wars, forcing some of the operators to merge and driven smaller players out of the market. Only four major companies now remain in a once over-crowded market, and they undoubtedly dominate the nation's telecom sector.

"The Indian telecom industry has seen lows in the past year due to wars for tariffs and data usage," says Dushyant Jani, the founder and chief executive of Mobclixs Technologies in Mumbai. 

Reliance Industries, a conglomerate largely associated with oil businesses and controlled by India's richest man Mukesh Ambani, in September 2016 launched a new telecoms operator, Reliance Jio. This has transformed the landscape of the industry, with cheap data deals, extensive free trial offers and promises of free calls for life. Mr Ambani has described data as "the new oil", as his company makes a push to dominate the sector.

"Due to the Jio effect, revenues of telecom firms have seen a considerable change. Mergers have been on the rise, but the entry of Jio [also] saw many telecom operators shut shop as well," notes Mr Jani.

The four major firms that are now left in India are: Bharti-Airtel, Idea-Vodafone, public sector BSNL-MNTL and Jio. In March, Vodafone's Indian subsidiary and Idea announced they were merging.

“The current scenario in the Indian telecom industry is very, very volatile,” says Malik Gilani, the founder and chief executive of Esar Media and Advertising in Mumbai. “The disruption of the data revenue which has been caused by the inclusion of Jio [in the mix] has changed the balance sheets of operators.”

Telcos have seen sharp declines in profit and some of them even recorded losses this year. The industry is expected to see a 5.3 per cent year-on-year decline in the gross revenues to 1.79 trillion rupees (US$28 billion) in the current financial year, which runs until the end of March 2018, according to JM Financial, an Indian financial services group.

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However, the firm forecasts a recovery in the next fiscal year,  and projects that revenues could rise by 6.5 per cent, largely on account of fewer competitors in the market. 

“We expect sequential revenue growth to begin from the January to March quarter, driven by the exit of smaller telcos, 4G price hikes and likely adoption of unlimited calling plans by 2G feature phone users,” says Sanjay Chawla, a telecom analyst at JM Financial Research.

Smaller telcos, which include Aircel and Tata Teleservices are expected to either merge or remain niche operators.

Thursday's long-awaited verdict on the 2G scam, one of India's biggest corporate scandals, the court in a surprise decision acquitted all the parties implicated in the case. The long running court battle is a reminder of the upheaval the industry has been through over the last few years and of a time when there were too many operators in the market.

Those cleared in the corruption case include a number of high profile corporate executives and political figures, including the former telecoms minister A Raja, who were accused of colluding in awarding 2G telecoms spectrum licences in 2008, at prices below the market value in exchange for bribes.

The corruption case resulted in the Indian Supreme Court cancelling all 122 telecom licences in 2012, forcing some foreign telecoms operators to exit the Indian market, including Etisalat, after it became inadvertently involved in the issue when it bough a stake in Swan Telecom in 2009, the company which had acquired a 2G licence a year before Etisalat’s investments.

The verdict is seen as a blow to prime minister Narendra Modi's Bharatiya Janata Party (BJP) government which has been running an anti-corruption drive in India. This multi-billion dollar scandal was considered a factor in the Congress party – which was in power at the time of the alleged scam – losing to the BJP in the 2014 general elections.

"It took long to uncover this 2G scam – and now that the current verdict is out, it's shocking," says Mr Jani.

The stakes are high when it comes to India's telecom sector. In a country of 1.3 billion people with a young demographic, the smartphone market is rapidly expanding. India recently overtook the United States to become the world's second largest smartphone market after China, with shipments of phones to India rising 23 per cent in the third quarter of the year to more than 40 million handsets, according to figures from technology research firm Canalys.

Smartphone use is only expected to rise, with many Indians still using older phones expected to migrate to the smartphones, particularly as data costs and the price of devices come down. Manufacturing of  budget smartphones in China and India is going to make owning a device easier and more affordable.

"Consumers have become more powerful and connected," says Mr Gilani, who adds that for many Indians, a mobile phone is often the primary mean of accessing the internet and data use is on on the rise in the country.

This bodes well for the operators which are left standing. The surviving players now have a significant opportunity to grow, say analysts.

“The industry revenues could revive over 12 to 18 months period led by Jio increasing its tariffs, the exit of smaller telcos and expansion of the data revenue base, leading to probability of relatively stable pricing environment with lower competitors per circle,” says Tanu Sharma, an associate director at India Ratings and Research.

Ms Chawla expects the gross revenue of the companies that chosen to exit the market will get redistributed among the "big three" and public sector undertakings over the next 12 to 15 months.

Reliance Communications, owned by Mukesh Ambani's brother Anil Ambani (who is struggling with his own debt problems) was forced to shut down operations of his company Reliance Communications at the end of November. He is facing an insolvency case filed against his firm by China Development Bank, according to reports.

This case is expected to come before the bankruptcy court in January; and Reliance Jio is understood to be looking at acquiring some of Reliance Communications assets, including telecom tower infrastructure and spectrum, Indian business newspaper Mint reported yesterday.

There will be more opportunities for telecom companies in the near term as Indian government continues to  look at ways to test and meet its target of rolling out 5G technology for consumers by 2020 in the country, which offers enormous potential for the telecom to ring up significant profits.

“The key downside risk is Jio introducing promotional free services or lower prices to drive the uptake of its 4G feature phone, Jio Phone,” says Mr Chawla.