The all-out price war of top telecom players is not sustainable in the long run
A full-blown price war between three top telecom players, Bharti Airtel, Reliance Jio and Vodafone-Idea, will leave all of them gasping for liquidity given the un-sustainability of their businesses due to the big churn in the telecom industry and the mounting debt levels. After reliance Jio decided to unveil its revenue model, feisty Sunil Mittal hit back by dispensing with domestic roaming charges.
Added to this huge cut throat competition was the massive dip in revenue realisation on call and data services, steep increase in spectrum prices over last one decade and ever growing demand for capital investments to retain and sustain customers across price lines.
While it’s merry-making for telecom consumers in the short term, the big question was where would the top three players land themselves as revenues dry up on both data, voice and value add services? Will the vendors go the e-commerce way with inordinate delays in release of payments? Bharti Airtel’s decision on Monday to waive roaming charges on outgoing & incoming calls, SMSes and data usage beginning April 1 has taken the predatory pricing war into Reliance Jio’s court and to the next level. Mittal will clearly fight fire with fire as the leader.
Sunil Bharti Mittal’s hyped war on roaming seems definitely to beat Reliance Jio at its own game. Mukesh Ambani’s announcement to continue free voice and roaming services for its 100 million customers for one more year seems to have forced Mittal to hit back. Only redeeming factor in this slugfest was that Ambani has begun albeit modestly to monetise his $ 25 billion network by launching Prime.
Logical market dynamics suggest that Vodafone and Idea Cellular, presently in advanced negotiations for an all share merger deal, will have to follow suit with their own version of freebies. Other fringe players will have to fall in line with the three combative telecom players or perish under the weight of their debt burden. Tata teleservices settling its controversial legal wrangle with ntt docomo by forking out $1.17 billion is a precursor to its deal withRCom.
Most significant is that freebies continue to be showered on consumers at a time when the industry’s debt has risen to a colossal Rs 474,000 crore for both GSM and CDMA players. This has not only sucked out liquidity from the top players but also led to saturated networks while some of the most expensive spectrum continues to be hoarded with no succour for call drops. A Raja’s great axiom of giving out 2G spectrum in 2008 at 2003 prices to break the stranglehold of a cartel only hurt the industry acutely, leading to a shakeout and now rapid consolidation process.
Telecom sector has singularly contributed to non-performing or unserviceable debt with banks and financial services companies that crossed Rs 700,000 crore as on date. Telecom players’ bottom-lines have decisively been impacted as a result of free fall in tariffs, explosive freebies and massive marketing expenses. Their balance sheets reflect the weak numbers. Belying projections, Bharti Airtel’s profits have halved to Rs 504 crore in the last quarter after Reliance Jio reportedly made substantive inroads into its high value data clients. As admitted by Mittal, Bharti Airtel’s overall earnings were lower by three per cent at Rs 3,336 crore post-Reliance Jio launch. Further, Bharti was forced to bring down the data tariff by a huge 66 per cent across customer base that’s likely to reflect on its accounts in coming days.
While consumers made the most, telecom regulator, Trai seems to have decided to stay out and not interfere in this all out pricing war between top players. Till now, Vodafone and Idea Cellular have been watching from sidelines though they did challenge the predatory pricing at the telecom appellate tribunal.
Mittal’s suggestion to pool spectrum across frequencies and technology platforms through separate holding companies for sharing airwaves could be a way out of the liquidity crunch. Given the huge cash shortages, uncertainty and volatility, investors seem to have lost appetite for the telecom sector globally. Mittal used the on-going Barcelona world mobile congress to push for independent holding of airwaves, remove the borrowings on spectrum acquisition from the balance sheets of services providers. This suggestion needs serious consideration by the world telecom services players.