For small telcos, the best bet may be to cut losses and run
Small telcos can strike deals with the better-off companies for assets and/or services they may be interested in
In the telecom industry, the best things don’t come in small packages. On the contrary, small telcos are in dire straits.
Tata Teleservices Ltd will exit the mobile telephony business, according to a Mint report. Earlier news reports suggested it was in talks with Bharti Airtel Ltd for a possible combination, although nothing seems to have come of it.
It makes sense for the firm to cut its losses and run. Even if it had managed to eke out some consideration from Bharti Airtel for its mobile business, it would most likely be offset by the cash burn till the time the deal is finalized. As such, it doesn’t make much sense to prolong the inevitable.
In fact, the writing on the wall has been clear for some time now. Earlier this year, Telenor ASA handed over its India business to Bharti Airtel for zero consideration, despite having 44 million customers and nearly Rs5,000 crore in annual revenues.
Reliance Communications Ltd (RCom) is more hopeful, and has said it will get out of its difficulties by March 2018. The company has been given a moratorium on its debt servicing obligations until December this year. It’s hard to see how things will turn around.
As the chart alongside shows, small companies have been the worst hit since Reliance Jio Infocomm Ltd’s launch last year. RCom’s revenue has fallen by as much as a third, after including revenue of Sistema Shyam TeleServices Ltd, far higher than the 8-9% drop in revenues of large incumbents.
Data from the Telecom Regulatory Authority of India shows that these companies have also witnessed a large exodus of subscribers. With Reliance Jio and other large incumbents now aggressively targeting lower-end feature phone users, things will progressively get worse for small telcos, which get a large chunk of revenues from relatively low-value users.
Thanks to the drop in revenues, losses are mounting; and with debt already at monumental levels, small telcos don’t have the ability to invest in their networks to attract/retain subscribers. In short, they are trapped in a vicious cycle. To use RCom chairman Anil Ambani’s words, “The wireless sector is slowly moving towards an oligopoly, duopoly or potentially a monopoly.”
The dice is evidently loaded in favour of companies with deep pockets. At best, small telcos can strike deals with these better-off companies for assets and/or services they may be interested in. But in terms of continuing as a wireless business, there’s barely any light at the end of the tunnel.
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.