Jio’s presence rattles revenue of top telecom firms

The entry of new player Reliance Jio (Jio) on September 5 last year in the telecom sector has forced incumbent firms to cut voice and data rates, said Economic Survey-II for 2016-17.

The stiff competition, price war and reduced revenue have trapped the sector into a highly leveraged one, it added.

The Survey also said it was worrying that the share of the sector in non-performing assets (NPAs) had increased.

“Though the total NPAs of the telecom sector in public sector banks has fallen to ~2,335 crore in 2016-17 from ~3,456 crore in 201516, the share of NPAs of infrastructure sector increased to 8.7 per cent in 2016-17, from five per cent in 2015-16,” the Survey said.

It said the industry also faced higher spectrum charges.

The adjusted gross revenue of the top three telecom companies in India — Bharti Airtel, Vodafone and Idea Cellular — decreased by 7.98 per cent, 5.14 per cent and 4.91 per cent, respectively, in the third quarter of 2016-17, compared with the previous quarter.

With the introduction of Jio, the competition extended from cheaper calls to cheaper data. The Reliance Industriesowned subsidiary recorded the highest net addition of 56.2 million subscribers, much higher than others service providers such as Idea with 11.7 million and Bharti Airtel with 5.9 million subscribers in Q3 of 2016-17. The Survey said the sector had experienced its own version of the “renewables shock” in the form of a new entrant that had dramatically reduced prices for and increased access to data, thereby benefitting consumers, at least in the short-run.

But the near-term implications on incumbents were serious: Their profitability has come down dramatically. After launching of services by the new entrant in September 2016, the average revenue per user (ARPU) for the industry on aggregate has come down by 22 per cent (December 2009-June 2016) ARPU, and by about 32 per cent since September 2016.

“In the telecommunications case, not only is the banking system exposed but also the government to whom the companies owe a variety of fees and taxes,” the Survey said.

According to the Survey, the mobile industry in India currently contributes 6.5 per cent ($140 billion) to the country’s gross domestic product and employs over four million people, directly and indirectly.

The adjusted gross revenue of Bharti Airtel, Vodafone and Idea Cellular decreased by 7.9 per cent, 5.1 per cent and 4.9 per cent, respectively, in Q3 of 2016-17