Telecom Price War in Final Stages: S&P
India’s big phone companies may be burning cash amid brutal competition for market share, but the fight for subscribers by offering rock-bottom prices triggered by the entry of Reliance Jio Infocomm “is in its final stages”, S&P Global Ratings said on Tuesday.
The global rating agency expects the Mukesh Ambani-run 4G new entrant to “rationalise its competitive strategy at some point over the next 12-18 months and start focusing on achieving sustainable revenue and margins”.
“Jio, through heavy discounting, has managed to grab 10% of the country’s telco subscriber base in less than a year, but costly discounting practices cannot last forever,” Ashutosh Sharma, S&P Global Ratings credit analyst, said. But the global ratings agency conceded that Jio’s aggressive tactics have been “a strain on revenue, profitability and cash flows of all contestants in this game”.
India’s raging telecom battle, according to Sharma, has “all the ingredients of a ‘Hunger Games’ movie, the combination of rivalry, power plays and elimination of the weak, has investors, financiers, analysts and the government on the edge of their seats”.
S&P also expects telco margins and cash positions “to be further challenged before they get better”, and expects revenues to decline 5-10% in FY18.