The disruption created by the entry of Reliance Jio last year continued to regale customers in 2017 with extended lower tariffs, free voice, and high speed data services, even as profits of incumbent operators – Bharti Airtel, Vodafone, Idea Cellular got squeezed. The impact for smaller operators was even more severe, leading to consolidation in the sector. Read On...
A noticeable trend that started in 2016 and got further strengthened in 2017, was the redrawing of the telecom landscape. The industry is consolidating from a very large 8-9 operators to 4-5 players now. The sponsors of smaller, unprofitable telecom companies have either exited or have merged with larger operators.
Prominent among the mergers in 2017 was the announcement by Idea Cellular and Vodafone to merge their businesses to counter the influence of RJio. This merger once complete will create India’s largest telecom entity in terms of subscribers and total revenues. This was followed by announcement by Tata Teleservices to sell its loss making wireless mobile business to Bharti Airtel on "debt free and cash free basis". The deal once complete will help Bharti Airtel to narrow its subscriber-and-revenue gap in comparison with the combined entity of Idea and Vodafone.
The most important of all deals, however was reserved for the last month of the year when Reliance Jio announced its definitive agreement to buy the assets of RCom in a deal pegged at Rs 24,000 crore. RCom owned by Anil Ambani had accumulated a total debt of Rs 45,000 crore and was taken to courts by lenders under the Insolvency and Bankruptcy Code. It was long expected that Mukesh Ambani, who owns RJio and is the elder brother of Anil Ambani, would bail out RCom.
Experts believe, this large scale consolidation can be attributed to loss of subscriber base by the smaller players. In the last one year, smaller telecom companies have lost a total of 38 million subscribers, which challenged their business continuity. As seen from above examples many of these companies were forced to sell their business at rock-bottom valuations and even needed to restructure their debt.
Hastened consolidation has however benefited larger telcom companies as subscriber market share and revenue market share of smaller telcom companies came to them. Not just that, large telcos have benefited from the acquisition of spectrum and telecom assets at lucrative prices, which in turn strengthened their business model.
According to Tanu Sharma, associate director at India Ratings, smaller telecom companies with high debt, small revenues and profitability pressures had limited scope to incur massive capex on network and further spectrum acquisition. Besides, the pricing pressure and large capex investment led to increased capex-to-sales ratio that translated into weak return on capital employed for the present and the foreseeable future.
She notes, that, industry was already consolidating on spectrum resources and the year 2017 saw acceleration in consolidation with late entrants into 3G/4G losing ground. "Smaller players started to exit as negative or low returns did not justify investments," Sharma said.
In the six months to September 30, RJio added the maximum of 29.9 million new subscribers as against a total of 25 million subscribers added by the rest of the industry. RJio gained 10.2% subscriber market share in the 12 months ended September.
The top three telecom companies, Airtel, Vodafone and Idea accounted for 61.3% subscriber market share in September 2016, which came down to 57.7% in September 2017. Smaller telcos lost 6.8% subscriber market share in the last one year. Bharti’s subscriber market share (including Tata Teleservices and Telenor) would be 31.5% and that of Vodafone-Idea combined would be 33.9%.
Outlook for 2018
With opportunities in new technology areas, such as internet of things (IoT), artificial intelligence (IA) and movement from 4G to 5G and 6G, the Indian telecom sector is poised for rapid growth. According to a report prepared by GSM Association (GSMA) in collaboration with the Boston Consulting Group (BCG), the country is the fourth largest app economy in the world. As the world’s second-largest telecommunications market with a subscriber base of 1.05 billion, the Indian mobile economy is expected to contribute substantially to India's GDP.
Some of the things to keep track of in 2018 would be the government’s plan to provide wifi facility to 550,000 villages by March 2019 at an estimated cost of Rs 3,700 crore. 2018 would also throw up numbers on governments' allocation of Rs 10,000 crore for roll-out of optical fibre-based broadband network across 150,000 cumulative gram panchayats and Rs 3,000 crore for laying optical fibre cable and procuring equipment for the Network For Spectrum (NFS) project for FY18.
According to the Department of Telecommunications, India has also set up a high level "5G India 2020 Forum" with the primary objective of early deployment of 5G in India and a globally competitive product development and manufacturing ecosystem targeting 50 per cent of the Indian market and 10 per cent of the global market over the next 5-7 years.
The Government also plans to auction the 5G spectrum in bands like 3,300 MHz and 3,400 MHz to promote initiatives like Internet of Things (IoT), machine-to-machine communications, instant high definition video transfer as well as its Smart Cities initiative. It has launched a phased manufacturing programme (PMP) aimed at adding more smartphone components under the Make in India initiative thereby giving a push to the domestic manufacturing of mobile handsets.
It is expected as these initiatives take shape and the mobile players find stable ground, the year 2018 could be the much awaited period of profitable growth for the industry!
- TradeBriefs Bureau -
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