The Matter with Size
Reliance Jio’s big bang entry last September into the mobile telephony sector has set in motion yet another high-profile consolidation in the telecom industry. Bharti Airtel, India’s largest mobile telecom company, is reportedly in talks with the $100 billion Tata Group to merge the Tatas’ embattled telecom business with itself. The talks come a little over three months after Idea Cellular, a company from the Aditya Birla Group stable, announced its merger with Vodafone India in a $23.2 billion deal, which, when it finally comes through next year, will place the combine a notch higher than Airtel in terms of total subscriber numbers.
Although neither company has commented on the move, any Airtel-Tata deal will almost certainly be structured to make sure that all the Tatas’ telecom businesses—mobile telephony (Tata Teleservices), direct-to-home (Tata Sky) and enterprise service (Tata Communications)— merge into Bharti. The benefits of this will be manifold. A deal with the Tatas will certainly put Airtel in a better position to take on Reliance Jio and Idea-Vodafone. Vodafone and Idea together had 404.4 million subscribers, according to data released in March 2017 by the Cellular Operators Association of India (COAI). Bharti Airtel, on the other hand, had 273.7 million and Tata Teleservices 45 million. Reliance Jio, the latest entrant, had already garnered a subscriber base of 108.9 million by March 2017.
Jio’s initial offer of near-free services till April this year really bled its competitors. Airtel’s profits, for instance, plunged 72 per cent, settling at Rs 373.4 crore in the last quarter of 2016-17 as the company slashed tariffs to retain customers. Vodafone India’s operating profit for the financial year fell by over 10 per cent. Chances are this trend will endure over the next few quarters. “If anything, competition will only heat up, given that market leadership is crucial in the business,” said Crisil in an April 2017 report. COAI data shows India had 895 million mobile phone subscribers in March 2017.
The deal will not do much to grow Bharti
Airtel’s subscriber base, but a clubbing of its DTH business with that of the Tatas would make it the indisputable leader in that segment. As of December 2016, Tata Sky had a 23 per cent share of the DTH market and Airtel 20 per cent. A TataAirtel combine will easily dislodge Dish TV, which is the current market leader with a 25 per cent share.
For the Tatas, a merger, or even an outright sale of the telecom business, will mark the end of a beleaguered innings in the sector, in which, except for DTH, it has been struggling to find a firm footing. Their telecom business is saddled with debts amounting to Rs 32,000 crore and the firm is also locked in a $1.17 billion dispute with Japan’s NTT Docomo over the latter’s exit from the joint venture. Yet another deterrent for any potential bidder for the Tatas’ telecom business may be the government’s 26 per cent stake in Tata Communications, which is to be divested later this year.