Game of tones

Game of tones

Consolidation in India’s overcrowded telecommunications industry was perhaps inevitable. What is interesting though is that the current wave of mergers and acquisitions, which started in November 2015 with Reliance Communications’ agreement to acquire Sistema’s Indian wireless business, has gained considerable momentum over the last 15 months with several more announcements — of deals struck or confirmation of ongoing merger negotiations — having been made. That the commercial start of services from the latest entrant, Reliance Jio, has been coterminous with this latest round of consolidation is not a simple coincidence. Given what some of its competitors have referred to as Jio’s “predatory” approach to pricing, the industry has found itself buffeted on the one hand by a sharp decline in earnings, and on the other by the high cost of servicing the debt that had helped incumbent operators bid for and acquire the much-needed wireless spectrum at the government’s auction of airwaves. It is this financial bind that the industry finds itself in that Sunil Mittal, Bharti Airtel founder and chairman, alluded to at the Mobile World Congress in Barcelona this week when he said that the return on capital deployed had dipped to low single-digit levels, making investment in the business unviable. Investors, he is reported to have quipped, would be better off putting their money in a bank and playing golf.
This is a far cry from the situation a little more than five years ago when as many as 12 private players jostled cheek by jowl with the two state-run telephone operators, BSNL and MTNL, as they vied for a share of the country’s 893.8 million wireless subscribers as of December 2011. And while the market had expanded to almost 1.13 billion subscribers as of December 2016, the number of non-state mobile services providers had shrunk to 10, inclusive of Reliance Jio. With seven of the nine either in the process of being acquired or merged, or in talks to negotiate a deal, the industry is now finally poised to coalesce into four large private sector entities, a welcome development both from the industry and government perspective. Still, size alone may not guarantee the enlarged companies’ good health, especially given the ongoing fierce battle for market share. That the seriousness of the situation has not been lost on the Telecom Commission is best underscored by the fact that it has asked the Telecom Regulatory Authority of India to ensure orderly growth in the sector. After all, a bruising and protracted price war, while certainly good for the consumers, is bound to extract a heavy price on the service providers’ financials, notwithstanding the deep pockets that the merged entities may command. That in turn risks further eroding the revenue the Centre earns from licence fees and spectrum usage charges, a fact cited by the Telecom Commission in its latest missive to TRAI. It is in no one’s interest to kill the goose that lays the golden eggs.