Mumbai: The sharp drop in telecom tariffs in the past two years has wreaked havoc on the financial health of Indian telecom firms. The surviving telcos are in dire straits. Idea Cellular Ltd reported pre-tax losses of 2,817 crore in the June quarter, compared to a profit of 600 crore in the June 2016 quarter, ahead of Reliance Jio’s launch. Its debt has reached unsustainable levels of 19 times annualised Q1 Ebitda. And although things will get better after the merger with Vodafone India, and the resulting cost synergies, unless substantial equity is brought in, leverage of the merged entity will be at damaging levels.

Both companies have lagged far behind Reliance Jio and Bharti Airtel Ltd with respect to investments in their network. Reliance Jio has stepped up investments lately with capital expenditure of 17,000 crore and 14,000 crore in the preceding two quarters.

Idea, with its balance sheet constraints, spent 7,000 crore on capex in all of financial year 2017-18. The gap is already beginning to show in subscriber numbers.

Until recently, when networks of Aircel Ltd and Reliance Communications Ltd were shutting down, Idea and Vodafone had the advantage of increasing subscriber numbers by going after customers leaving those networks. But now, it turns out that they are the most vulnerable among surviving telcos.

According to an analyst with a domestic institutional brokerage, Reliance Jio’s incremental market share is largely expected to come at the expense of the Vodafone Idea combine.

While Airtel is far better placed in terms of its balance sheet, the deterioration in the profitability of its India wireless business has been equally dramatic. In the June quarter, it reported a loss before tax of around 2,000 crore, compared to a profit of 2,340 crore ahead of Reliance Jio’s launch. And things are getting progressively worse. It burnt cash worth 4,200 crore last quarter, almost as much as it did in the whole of financial year 2017-18. As pointed above, this is driven by the need to increase data capacities, leading to higher capital expenditure.

Reliance Jio, interestingly, appears to be immune from all of the pain in the sector. It has reported profits for its wireless business in the past three quarters.

But its accounting has some quirks, including a different depreciation policy compared to peers, making comparisons difficult.

It’s best, then, to look at cash burn. On this measure, it leads the charts with cash burn of over 40,000 crore in the previous financial year. This includes capex funded by creditors and capitalised interest costs. Put together, incumbents’ cash burn was a fraction of this.

Of course, Reliance Jio is yet to commercially launch its non-mobile businesses such as home broadband, and it remains to be seen how much this segment contributes to overall profits.