Jio vs The Rest: Next round of telecom sector consolidation has just begun

From an industry that had a profit after tax of 15% of its revenues in 2007-08, its losses hit more than Rs 180 bn in 2016-17 even though the revenues doubled in the same period.

Business News India : For a customer using a mobile phone since 2007, it has been a dream run with voice calls now becoming free and unlimited compared to Rs 1 you had to fork out in 2007. Now you pay only for data at rock-bottom prices and monthly bills have dramatically halved in the past 18 months.

Yet in stark contrast, the story of telcos in the last decade has been a topsy-turvy downhill battle, bruised by cut-throat competition, policy paralysis and Central Bureau of Investigation probes, high spectrum prices, and the stick of the Supreme Court, which cancelled over 122 licences. But the incumbents have also faltered, misreading the dramatic change which 4G data would unleash, thanks to the entry of Reliance Jio.

From an industry that had a profit after tax of 15 per cent of its revenues in 2007-08, its losses hit more than Rs 180 billion in 2016-17 even though the revenues doubled in the same period. And its debt burden just went through the roof, increasing five-fold through the decade, which is close to double its overall revenues (see chart). As a result, many telcos like RCom that were unable to pay back loans sold their assets or, like Aircel, filed for bankruptcy.

The inevitable impact was that as many as eight companies such as STel, Loop, and Etisalat closed down operations, some like Telenor and MTS, which tried once again by acquiring the licence for a second time, failed miserably again. And desi players like Tata Teleservices and RCom that could not take the heat of competition unleased by the entry of Jio also called it a day. Together, estimates say, they lost more than Rs 1,500 billion in cash.

Jio hastened the consolidation by its disruptive pricing, and now analysts say there will only be four players — Bharti, Vodafone-Idea, Jio and BSNL.

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Net neutrality directions to benefit Reliance Jio, Bharti Airtel

Analysts say they will use the content delivery network exemption and offer platform content at lower prices to drive their subscriber base

 

Business News India : Recommendations of the Telecom Regulatory Authority of India (Trai) on Net neutrality are broadly in line with its February 2016 regulation prohibiting discriminatory tariffs for data services.

They also bar differential speeds for various offerings by internet service providers. However, the telecom regulator has kept content delivery networks out of the regulation. This means that cellular service providers who have their own content platform and are offering these services on their own network (content delivery networks) can charge differential pricing.

Mayuresh Joshi of Angel Broking says the reason content delivery networks have been kept out of the regulation is that they will not impact competition and are not considered discriminatory.

According to analysts at Edelweiss Securities, the proposed rules are likely to give integrated operators an upper hand versus pure-play connectivity providers. They expect telcos such as Reliance Jio and Bharti Airtel to be key beneficiaries as they have a presence in content platforms. Reliance Jio (JioTV and JioCinema, among others) and Airtel (Wynk Movies, Music & Games) have been creating their own content ecosystem to retain and increase subscribers.

Analysts say they will use the content delivery network exemption and offer platform content at lower prices to drive their subscriber base.

Most analysts believe that rules are in place but Trai has now recommended that licence conditions related to the issue needs to be amended to cover all other types of discrimination.

Click to Know →  Net Neutrality Rules India

Shutting down 2G biz and adopting a 4G strategy may not work for RCom

RCom's average revenue per user (Arpu) of Rs 58 per month for Q1FY18 is the lowest in the industry

 

 

Shutting down 2G wireless business of Reliance Communications (RCom) will turn out a boon for other incumbent operators as most of its feature phone customers look likely to switch from the carrier.

According to analysts and industry watchers, Reliance 2G customers may not migrate to 4G as most are feature phone users with very low monthly spending and little willingness to invest in a 4G-ready smartphone.

In fact, going by a Goldman Sachs' report, RCom's average revenue per user (Arpu) of Rs 58 per month for Q1FY18 is the lowest in the industry, over 50 per cent lower than the industry average, a signal implying most customers to be voice users.

The average Arpu of the industry stands at Rs 130-140.

Analysts say RCom adopting a 4G-focused strategy and shutting down its 2G business and asking customers to migrate to 4G may not be a feasible business as most of its users generate lowest Arpu in the industry, them being feature-phone owners.

The Anil Ambani-owned company had lost 95 per cent of its subscribers in five service areas - West Bengal, Assam, Bihar, Northeast and Odisha - in 2015 when it did not renew its 900 megahertz (MHz) spectrum (used for 2G services). RCom had 24 million active subscribers in these five areas as on September-end 2015 and by June-end 2016, they reduced to one million.

According to Telecom Regulatory Authority of India, as of July-end 2017, RCom had a total subscriber base of 81 million, of which 13 million were wireless broadband (3G plus 4G) users.

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