Telecom meltdown: 13 to 4 in less than a decade

Nearly 14 years ago, Bharti Airtel Chairman Su nil Mitt al had said in an interview that eventually there would not be more than four players in the telecom sector. With the announcement of merger between the T at as' wireless businessand Bharti Airtel, Mittal's prediction is fast turning out to be a reality. It' s a different matter that at that time he may not have factored in the mayhem the market is witnessing now due to the entry of Reliance Jio.

Today, the telecom map has shrunk considerably from as many as 13 players in 2008-09. Operators are jostling for users, offering them rock-bottom prices, while also bleeding with growing losses and piling debt. After a series of consolidation sand winding-ups, only four players are likely to hold their ground, with three — Airtel, Idea-Vodafone combine, and Jio— accounting for over 90 percent of all users. The fourth, smaller player, BSNL/MTNL— which would continue to be supported by thegovernment, unless it decides togo for pr iv at is at ion—might play a limited role.

However, there is one part of the puzzle that still needs to be fixed for a full consolidation to take place. Reliance Communications (RCom) and Aircel, which together control nearly 15 per cent of the market and whose merger was called off a few days ago, have to figure out their future.

There is a consensus among analysts that R Comand Aircel, burdened as they are with over ~60,000 cr ore of debt on their books, cannot survive as independent entities anymore. And, their choices are limited.

They might sell off to one of the big three after they have found a solution to their debt over hang, as no buyer would be willing to take over their loans. R Comi sex pected to eventually align with J io.

Analysts also say they could wind down operations and sell in parts, or simply declare bankruptcy. But they must make a decision soon with their market share eroding at a fast pace. R Com saw its subscriber share falling from 8.46 percent in August 2016 to 6.85 percent in July 2017. And, it has a revenue market share of only threepercent.

In the T TS Las well as Tel en or deals( where spectrum has been given for free to the buyer ), it has been am ply demonstrated that the on-paper value of the once-valuable liberal is ed spectrum is just amy th. After all, it is now a buyers’ market, analysts like Kotak Securities say.

For Airtel, the merger with T TS L has clearly been a positive. The company would be able narrow the gap with the proposed Idea-Vodafone combine, projected to be the largest player.

Airtel, along with TTSL and Telenor (which it acquired earlier this year), has a market share of 31.22 per cent according to the July data, just a shade lower than the 34.34 per cent of the Idea-Vodafone combine. Additionally, the gap between the two rival combines, in terms of the share of telecom revenue, would also narrow. While Airtel would now have 40 per cent, the Idea-Vodafone entity would have 41 per cent. These numbers, of course, would come down once Jio declares its full revenue from its telecom subscribers (currently its revenue share is only two per cent).

The three big boys — especially with the net addition of new customers growing at a tardy pace due to a high market penetration — would look at picking up customers aggressively from RCom and Aircel, which still together have a substantial 174 million subscribers and about eight per cent share of telecom revenue. Jio expects that through the ~1,500 feature phone offer, it would be able to woo a substantial portion of the 500 million customers who use feature phones but hardly any data.

Analysts say Jio has an ambitious target to reach around 300 million customers, more than double of what they currently have. But that might be challenging, as incumbent operators are hitting back. Both Airtel and Vodafone have tied up with device manufacturers to take Jio head on. Airtel is already offering a smartphone at an effective price of only ~1,399. Most analysts believe that the new offer from Jio, especially with a commitment of ~150 per month, is not so attractive as to see a large exodus. Also, analysts believe that Jio cannot play the pricing game anymore, as it also has to show returns to its shareholders on the massive investment.

Analysts see various probabilities — if Jio picks ups RCom, it would get an additional 85 million customers, pushing its subscriber market share to 18 per cent and also get an additional three per cent of its share of overall revenues.