Even as the Indian telecom industry reels under massive financial stress, after India’s telecom regulator, TRAI cut interconnect usage charge (IUC) to 6 paise a minute from October 1, Airtel’s top man sees a silver lining– consolidation in the telecom space. Gopal Vittal, the chief executive officer of Bharti Airtel told ET Now, “The impact (of IUC rate cut) is pretty serious. But the silver lining in all of this is that the market is rapidly consolidating.”
According to him, there will be only four major players in the coming future. “In the next 12-18 months, we’ll probably be left with only three operators plus BSNL from the current eight players, which is a good thing as this industry needs a lot of investment,” he told the news channel.
Financial woes of Bharti Airtel continue, as Goldman Sachs estimates that Bharti Airtel’s cash flows will reduce by more than $150 million yearly due to the rate cut. In a company statement last week, Bharti Airtel said, “We are extremely disappointed with the latest regulation on the IUC, especially at a time when the industry is facing severe financial stress. The suggested IUC rate, which has been arrived at in a completely non-transparent fashion, benefits only one operator which enjoys a huge traffic asymmetry in its favor.”
The rate cut by India’s telecom regulator TRAI has led global research and brokerage firms such as CLSA, Goldman Sachs and Bank of America cheering for Reliance Industries, even as the stock trades at all-time high levels. Goldman Sachs has revised its estimates upwards for the shares of India’s most valued company to Rs 905 from earlier Rs 875, as the research firm sees $250-400 million increase in EBITDA for Reliance Jio after the IUC cut.
A lot is happening on the consolidation front in the telecom space with high profile business combination of Bharti Airtel and Telenor India on Idea-Vodafone merger on the cards. The National Company Law Tribunal (NCLT) has approved the proposed merger between Bharti Airtel and Telenor India. Taking on the competition, a possible Vodafone-Idea combine will surpass Bharti Airtel as the largest telecommunication company with a total subscriber base of 39 crore. Further, the combined entity would have 43% of the revenue market share and 40% of the active subscriber base, research firm CLSA had said.
However, there are concerns that with the competitors taking active steps to build scale, Reliance Jio may further intensify its offerings, putting even more pressure on the incumbents.