Telecom enters final phase of consolidation as RCom exits
New Delhi: Reliance Communications Ltd’s planned sale of its wireless business assets by the end of March would be the latest instance of upheaval that has swept through the telecom industry since the entry of Reliance Jio Infocomm Ltd.
Once the RCom asset sale is completed, Aircel Ltd will be the sole remaining small operator that is outside government control in the telecom sector, indicating the consolidation in the industry has entered the final phase.
The entry of Reliance Jio in September 2016 triggered the long-heralded telecom consolidation and ushered in a data revolution. The first outcome was the collateral damage from the latter, a well-thought-through strategy by the Mukesh Ambani-controlled Reliance Jio to destabilize the incumbents that was centred around a tariff war initially caused by free services and later by ultra cheap offers.
Anil Ambani, chairman of the Reliance Group that controls RCom, indicated on Tuesday that the group’s inability to make regular investments hastened the end of RCom’s wireless business.
“The writing was on the wall. You really need a pipeline into the Reserve Bank of India’s printing press, if you want to be in the wireless business because it is a guzzler of currency every minute, every hour and every single day,” Ambani said.
“This is a crisis of the wireless telecom sector. It has engulfed many, many people. If it is the mighty house of the Tatas, who had to gift their business then there is little to be said about other competitive groups,” he added.
Ambani has shared his observations earlier also.
In a statement to the exchanges on 4 July, Reliance Communications said, “The telecom industry’s current financial problem to some extent can be attributed to the entry of a new telecom operator and its strategy of freebies to gain customer and market share.”
The telecom industry is capital intensive. As a result of this, debt of telecom companies has been ever rising, the company had said then. “For the first time in history, the listed telecom operators debt has exceeded their market capitalization.”
Among the most notable deal-making since Reliance Jio started commercial services is the proposed merger between Vodafone India Ltd and Idea Cellular Ltd, a combination that is set to end Bharti Airtel Ltd’s more than two-decade-long reign as India’s No.1 telecom firm. The Vodafone-Idea merger will create the world’s second largest and India’s largest telecom firm. It will have almost 400 million customers, with 35% customer and 42% revenue market share. It will have a revenue of Rs81,600 crore and an operating profit of Rs24,400 crore. Together, Idea Cellular and Vodafone India have a debt of Rs1.08 trillion. The merger is expected to be completed in 2018.
To counter Reliance Jio and a mammoth that Vodafone-Idea could be, Airtel on its part acquired assets of Telenor India, Tikona Digital, and consumer and mobile businesses of Tata Teleservices.
Telecom mergers do allow for meaningful synergies on costs. One easy way is network rationalization —as the combined entity of Vodafone and Idea will have the freedom to shut each other’s sites wherever they overlap, without much penalty costs to worry about. There could be cross synergies on capacity—as Idea’s spectrum can radiate from Vodafone’s sites, and vice versa.
But, that would mean little for consumers.
“The end of consolidation is looking bad for consumers with only a few companies left. Today consumers are happy as they are getting cheap tariffs, but this party will end soon,” said an industry executive requesting anonymity.
The industry believes there will be three private companies and one government entity (MTNL-BSNL) that will fight it out in the telecom space.
“But actually only Bharti Airtel and Reliance Jio will be the real companies left as Vodafone-Idea have not shown significant investments in 4G. For Reliance Jio and Airtel, this trend looks fantastic as they will have more pricing power in the market,” the executive added.
Fewer companies would also be a deterrent to the prospects of tower companies and equipment makers. “Their valuations will be affected,” the executive said.
Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.