KUMAR MAN­GALAM may tap mar­kets amid TELE­COM SHAKE­OUT

Financial Chronicle - - TELECOM CONSOLIDATION - BHUMA SHRIVASTAVA

BIL­LION­AIRE Kumar Man­galam Birla, whose Idea Cel­lu­lar is poised to be­come In­dia’s top car­rier, sees only a hand­ful of busi­nesses sur­viv­ing a price war roil­ing the world’s sec­ond largest tele­com mar­ket.

The chairman of the Aditya Birla Group also won’t haz­ard a guess on when the in­dus­try shake­out will end in a coun­try where calls al­ready cost less than two cents a minute — and are some­times of­fered free.

“The tele­com sec­tor is un­der­go­ing a very tur­bu­lent and dif­fi­cult phase,” Birla said in an in­ter­view this week. “Prob­a­bly the fittest three will sur­vive.”

In­dia’s mo­bile op­er­a­tors have seen rev­enue plum­met and debt soar after last year’s launch of Re­liance Jio In­fo­comm, a wire­less car­rier owned by Mukesh Am­bani, the coun­try’s rich­est man. That trig­gered a bruis­ing price war for mo­bile ser­vices. Jio started of­fer­ing free calls and many oth­ers in the in­dus­try fol­lowed.

Idea Cel­lu­lar is set to be­come the big­gest player by sub­scribers after it closes its merger with the lo­cal unit of Voda­fone Group, but it may still have to tap fi­nan­cial mar­kets to fund its sub­stan­tial cap­i­tal re­quire­ments, ac­cord­ing to Birla. Banks are grow­ing more cau­tious in lend­ing to the be­lea­guered in­dus­try as tele­com prof­its fiz­zle out.

With play­ers fall­ing “like nine pins,” Birla pre­dicts that “the tar­iffs should sta­bilise at some point.” It’s still hard to say when prices will stop fall­ing, and Idea won’t rule out share sales or bond is­sues to raise funds, he added. Idea Cel­lu­lar’s shares closed al­most 2 per cent higher at Rs 74.65 in Mum­bai com­pared with the 1.1 per cent rise in the S&P BSE Sen­sex In­dex and 1 per cent fall in ri­val Bharti Air­tel’s shares. Idea has gained 0.5 per cent this year com­pared to the Sen­sex’s 21 per cent rise.

Birla, 50, now faces the task of re­viv­ing prof­itabil­ity at Idea Cel­lu­lar, which has re­ported three con­sec­u­tive quar­ters of losses. Tele­com ac­counts for about 13 per cent of the over­all rev­enue of the Birla group, which also in­cludes min­ing, ce­ment and fi­nan­cial ser­vices. The Bloomberg Bil­lion­aires In­dex puts Birla’s net worth at $8.2 bil­lion.

The Voda­fone merger will help Idea save $2.1 bil­lion a year on op­er­at­ing costs and cap­i­tal in­vest­ments, while en­abling the com­bined en­tity to make bet­ter use of wire­less spec­trum. Banks though have be­come wary of wire­less op­er­a­tors and are charg­ing more, if they lend to them at all. Com­bined, the car­ri­ers owed Rs 4.6 tril­lion ($71 bil­lion) at the end of March, ac­cord­ing to rat­ing com­pany ICRA. “Banks have be­come very se­lec­tive,” Birla said. “Loans for the tele­com unit have be­come more ex­pen­sive than for other group com­pa­nies be­cause it has be­come a far riskier busi­ness.”

In­dia is the world’s sec­ond largest tele­com mar­ket by sub­scribers after China. For now, the sec­tor is dom­i­nated by Bharti Air­tel, con­trolled by bil­lion­aire Su­nil Bharti Mit­tal. Although that will change after Idea’s deal with Voda­fone is com­pleted.

A wave of other con­sol­i­da­tion is re­shap­ing the in­dus­try. Bharti Air­tel agreed to buy the strug­gling lo­cal unit of Te­lenor ASA in Fe­bru­ary, while Re­liance Com­mu­ni­ca­tions said in 2015 that it would buy AFK Sis­tema’s lo­cal unit.

Smaller play­ers in­clud­ing Re­liance Com­mu­ni­ca­tions and Tata Te­le­ser­vices are be­ing forced to at­tempt to re­struc­ture debt and sell as­sets. Loss-mak­ing Tata Te­le­ser­vices is said to be pre­par­ing to shut a large part of its tele­com busi­ness, ac­cord­ing to a Busi­ness Stan­dard re­port that cited peo­ple it didn’t iden­tify. “No Indian bank is ready to fund the tele­com op­er­a­tors. No for­eign bank wants to do it,” Anil Am­bani, chairman of Re­liance Com­mu­ni­ca­tions, told share­hold­ers on Septem­ber 26. “There’s no fi­nanc­ing for growth. Pe­riod.” Anil Am­bani is younger brother to Mukesh, and the two broth­ers’ busi­nesses are in­de­pen­dent although they share spec­trum, tele­com tow­ers and fiber. Re­liance Com­mu­ni­ca­tions faces a dead­line to restart pay­ments to lenders and is rac­ing to sell its spec­trum and real es­tate as­sets to re­duce debt. A planned merger with Air­cel col­lapsed ear­lier this month, bogged down by de­lays and law­suits. Con­sol­i­da­tion in the Indian mo­bile in­dus­try is set to ac­cel­er­ate, turn­ing it largely into a three-player mar­ket ben­e­fit­ing top op­er­a­tors, CLSA an­a­lysts wrote in an Oc­to­ber 9 note. Mo­bile voice and data tar­iffs have plum­meted to be­low-cost lev­els and the in­dus­try’s rev­enues will de­cline as much as 15 per cent this year, Hi­man­shu Ka­pa­nia, the MD of Idea Cel­lu­lar said in New Delhi last month.

In­dia’s mo­bile op­er­a­tors have seen rev­enue plum­met and debt soar after last year’s launch of Re­liance Jio In­fo­comm, which trig­gered a bruis­ing price war for mo­bile ser­vices

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