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Home / Markets / Mark To Market /  Is the Jio-Facebook deal bad news for Bharti Airtel and Vodafone Idea?

Is the Jio-Facebook deal bad news for Bharti Airtel and Vodafone Idea?

R. Sree Ram and Mobis Philipose

For now, investors seem enthused about the mega deal between Facebook Inc. and Jio Platforms Ltd and its implications for India’s telecom industry.

While shares of Jio’s parent, Reliance Industries Ltd, have risen by over 10%, even the stocks of Bharti Airtel Ltd and Vodafone Idea Ltd were trading higher. “Premium valuations and massive investments in Jio Platforms is sentimentally positive for Bharti and Vodafone Idea for future investments by other players, if any," analysts at Dolat Capital Market Pvt. Ltd said in a note.

However, a pertinent question is if the reduction in leverage at RIL results in Reliance Jio Infocomm Ltd dragging its feet on further tariff hikes. RIL can reduce leverage either through equity infusions or increasing profits, or, of course, doing both. Given that it has shown a preference for keeping tariffs at competitive levels and gain market share, rather than grow profits by raising tariffs, a worry in one section of the Street is that the next tariff hike may be a long distance away.

Of course, some analysts beg to differ. “Aggression suits a new entrant and not a market leader. If Jio cuts tariffs, it hurts itself the most. Secondly, Reliance Jio's tariff remains at a 7-20% discount to that of peers and its JioPhone offering should help the company remain competitive and help subscriber additions as it has in the past." analysts at Jefferies India Pvt Ltd said in a note.

Also, do note that equity infusion by Facebook is in Jio Platforms Ltd, and while this will reduce leverage at the RIL consolidated level, the financial metrics of Reliance Jio Infocomm remain the same.

Having said all this, it is clear that expecting tariff hikes anytime soon is foolhardy. With the economic impact of the lockdowns looming large, it’s unlikely the government will support any plans by telcos to raise tariffs in the near future. “We do note that the likelihood of further tariff hikes in 2020 will likely reduce," Jefferies added.

And all told, a financially and technologically stronger competitor can’t really be great news for the incumbents.

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