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Thursday, 6 July 2017

Jio, aur jeene do: Ambani’s 4G phone may jam up rival telcos : 6 Jul 2017


Oil-to-telecom conglomerate Reliance Industries’ aggressive push in the telecom sector has given a lot of pain to the incumbents in the past few quarters, eating into margins and market shares and forcing them to spend on technology upgrades. This has also led to some quick consolidation. 

After cut-throat competition spanning over two quarters, things appeared to have eased some bit during June quarter and some investors returned to the telecom counters to pick up stocks in cheaper prices.

But Reliance Jio is not done yet. The Ambani firm is readying the launch of its much-awaited 4G VoLTE feature phone this month, with some industry watchers pegging the price at just Rs 500. The handset is most likely to be unveiled at RIL’s annual general meeting on July 21. 

Jio is the only operator that runs a 4G VoLTE network, while its rivals such as Bharti AirtelBSE 0.24 %, Vodafone and Idea CellularBSE -0.06 % are running trials on VoLTE, and are yet to begin commercial launch. 

This promises another wave of disruption in the telecom sector. Analysts expect Jio to package a compelling tariff proposition with the mass-market 4G VoLTE feature phone to rev up active subscriber addition. Jio’s ultra-low Dhan-Dhana-Dhan tariff offer for new users closes sometime this month. 

Indian telecom operators have also been smarting under huge debt load from very competitive spectrum purchases over the past three years and the latest disruption by Jio has come as a bolt from the blue for the industry. 

Rising debt and falling revenue also adversely impacted debt-servicing capabilities of the telecom players. 

Reliance Communication, promoted by the Mukesh Ambani’s brother, recently said debt level of the listed telecom operator has exceeded its market capitalisation. 

Sunil Bharti Mittal, Chairman of India’s largest telecom operator Bharti AirtelBSE 0.24 %, said in the company’s annual report for the financial year gone by, that India witnessed “unprecedented market disruption following the entry of an extremely well-capitalised and aggressive new operator.” 

Reliance Jio’s prolonged free trial offers created massive pressure on industry revenues and margins, he said. 

Analysts have remained cautious on the sector. ICRABSE -0.17 % has projected another 6 percent drop in industry revenue in FY18 thanks to a tough competition and pricing pressure. 

The rating agency said the decline would be sharper for smaller players like Tata TeleservicesBSE -0.27 %, Aircel and Reliance CommunicationsBSE -0.23 %. 

For the year ended March 31, 2017, Reliance Communications reported a net loss of Rs 1,283 core against a net profit of Rs 660 crore last year. Idea Cellular reported a net loss of Rs 399.70 crore against net profit of Rs 2,728 crore. 

Bharti Airtel’s bottom line plunged 38 per cent YoY to Rs 4,241 crore during the year ended March 31, 2017 from Rs 6,893 crore a year ago. 

The Government of India has set up an inter-ministerial group (IMG) to examine the systemic issues plaguing viability and repayment capacity of the beleaguered telecom sector. The group’s recommendations are expected by July end. 

Some of the key industry demands include tax cuts, extension of spectrum payment period, floor on pricing and tweaking of mobile termination charges. 

Brokerage EdelweissBSE -0.12 % Securities says most of the demands are unlikely to pass muster, as they entail significant fiscal implications and possibility of jeopardising consumer interest. “Extension of spectrum payout period and reduction in spectrum usage charge (SUC) and licence fee (LF) could be possible regulatory interventions, at best. However, we do not expect these changes to meaningfully alter the sector’s course,” the brokerage said. 

Edelweiss retained a cautious stance on the sector in the light of sustained competitive intensity. 

ICICI Securities said Q1FY18 mobile revenue is likely to remain stable for Bharti Airtel and Idea Cellular on the back of strong volume growth, but realisations continue to shrink. Though their ARPUs remain on a downtrend, the decline has decelerated significantly. 

“Reliance Jio introduced paid services from April 1, and with most 4G handsets now on discounted tariff, it has likely plugged further revenue dip. 

However, it may be premature to view this as market repair, pending the launch of VoLTE feature phones,” ICICI Securities said in a research report. 

Both Edelweiss and ICICI Securities have ‘hold’ ratings on Bharti Airtel and Idea Cellular.

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