India’s billionaires believe in rugged, muscular capitalism — so at the first hint of trouble, they go running to mommy. Sunil Mittal, who controls India’s biggest wireless service, and Kumar Mangalam Birla, who’s in the process of merging his No. 3 operator with the second-ranked local unit of Vodafone Plc, are seeking the Indian government’s intervention. The big three claim the entry of Reliance Industries Ltd.’s fourth-generation network is threatening the economics of the industry. A so-called inter-ministerial group met for the first time on Monday to probe the claims. The stakes are high. Mittal’s Bharti Airtel Ltd. recently lost its predatory pricing case against Mukesh Ambani’s Reliance Jio at the Competition Commission of India, which ruled that the richest Indian wasn’t necessarily being anti-competitive in giving away voice calls and data for free. The incumbents are miffed. In his annual letter to shareholders, Birla blamed Idea Cellular Ltd.’s first loss since going public 11 years ago on “unprecedented disruption.”
That’s not entirely correct. Since India started opening up to the world in the 1990s, many industries have seen unprecedented disruption. The difference is that when private-sector operators started giving Indians phone connections on demand (versus putting them on a wait-list for years), it was a state duopoly that ceded market share. The government’s managers couldn’t care less. Even now, the chief executive of Mahanagar Telephone Nigam Ltd. won’t be losing any sleep over the 95 billion rupees ($1.5 billion) it will need to pay creditors in 2024: The state-run company hasn’t made a single rupee in operating profit in almost a decade.
Mittal and Birla — as well as Mukesh’s younger brother, Anil Ambani — don’t have the sovereign backing their debt. The capital structure of their businesses is their problem, and right now it’s a big headache. Reliance Communications Ltd.’s $300 million 2020 bonds are trading at 73 cents on the dollar as the company controlled by the younger Ambani looks to sell most of its operating businesses to avoid a default.
Mukesh may lend a helping hand, though not necessarily the Reliance Industries balance sheet, to keep his once-estranged younger sibling afloat. As Gadfly has argued, this is what everyone wants: An already creaky state-controlled banking system, the most exposed to RCom’s $7 billion of obligations, would hate to have to make large loan-loss provisions, which would eventually become taxpayers’ liability and cause a political stink.
RCom’s obligations: $7 billion
But even if Mukesh Ambani is able and willing to help RCom, he still won’t want the government to get too rattled by his competitors’ warnings of an industry in trouble. So his team is poking holes in rivals’ allegation that their woes can be traced to Ambani’s hyper-aggression.
There’s merit in Jio’s counterargument that its competitors have been overly dependent on debt. Jio claims that it has been funded by 6 times as much equity as debt. By contrast, Bharti Airtel has raised 33 times more debt than equity since 2010. Not just that. Almost 70 percent of the incumbent trio’s gross debt is on account of what they owe the government. Thanks to these deferred payment liabilities, which are for purchase of spectrum at irrationally high prices, technology upgrades have taken a hit.
Still, with 1.4 trillion rupees to recover from the top seven mobile operators (excluding Jio) for airwaves, New Delhi has a stake in making sure nobody goes under. Mommy will wipe the billionaires’ tears, but with a small, wet handkerchief, which definitely won’t come out of Ambani’s pocket. His powerful lobbying machine will make sure of that.