Just how much disruption can India’s telecoms sector take?

July 13th, 2017 by · 2 Comments

This article was authored by Lachlan Colquhoun, and was originally posted on telecomasia.net.

Some disruptors create the markets of the future because they bring new business models which revolutionize markets and harness new technology.

Other disruptors play a game which is a race to the bottom. They engage in a cut throat price war which sends everyone else to the wall, and they are among the last men standing. It’s a game of corporate Darwinism, not digital disruption in a positive sense.

Looking at India’s telecoms industry, I’m thinking that Reliance Jo is in the second category.

In the pursuit market supremacy, Jio has engaged in a price war which is threatening the sustainability of the industry.

The upside of free markets is price competition and reward for innovation, but in this case we are seeing the downside.

Consumers lapping up Jio’s pricing offers might have a different view when competitors start falling by the wayside, and Indian telecoms becomes a cartel or an oligopoly. If and when that happens Jio might not be so generous with its deals.

India should be one of the most promising telecoms markets in the world, and yet Jio has been using the supposedly deep pockets of the Reliance conglomerate to fund a price war which is putting pressure on the entire industry.

What should be a healthy industry expanding exponentially as India goes digital is saddled with absurd debt levels threatening to hobble progress.

Debt levels for the telecom industry in India are at a debt to ebitda ratio of 8:3, far higher than global benchmarks.

Things are so dire it has led the Reserve Bank of India to take the unusual step of asking banks to make higher provisions for loans to telcos.

These issues are not, of course, of Reliance Jo’s making. In a fever more akin to a goldrush, telcos have wildly overpaid for spectrum and are now stuck with servicing the debt, limiting their ability to invest in services or new technology.

Adding to the squeeze are the levies the telcos pay to the Indian Government, which has already banked funds from spectrum auctions. Around 11% of telco revenues go to the Government as levies, which is separate to direct and indirect taxes.

The Indian telecoms sector is so indebted that widespread defaults are a strong possibility. Even Reliance is not immune, with a consortium of lenders refusing to extend additional credit.

The most recent tariff plan launched by Jio this week is also not as generous as the earlier market buster. It is around 30% higher for consumers but still below competitors, which is an indication of just how low the previous offer was pitched.

The new Jio tariffs are being reported as a “breather” for other telecoms operators sent into panic by Jio’s earlier pricing tactics.

A breather it may be, but the issues in Indian telecoms will remain. Instead of charging ahead and creating a new digital future for India, the industry is in danger of descending into corporate carnage.

Reliance Jio clearly has a survival strategy, but it seems a short sighted one and is not aligned with the overall goal of creating a sustainable and efficient industry.

Indian telecoms has too many players who are part of the problem. This is not just in the industry operators, but among investors, regulators and government.

It would be great if more could be part of a solution, for the sake of India’s development and its businesses and retail consumers.

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Categories: Mergers and Acquisitions · Other Posts · Wireless

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2 Comments So Far

  • Roderick Beck says:

    One has to be suspicious to be complaining about too much competition in an Indian telecom market. India is not fully open to foreign competition and investment and price reflect the lack of full competition

    • Anonymous says:

      Totally agreed, the market is a basketcase and I would not bother if I was making global expansion decisions.

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