Reliance Jio when it launched its services last year, triggered a battle in the telecom sector where all the warring parties such as Airtel, Vodafone, Idea and others had to resort to really aggressive tactics to save their market share. A new report suggests that the suffering is not over in the telecom sector yet. Ratings agency Standard and Poor’s in a note has said that the telecom sector in India will witness around 10 percent fall in revenue in the current year. The report has added that the network providers in the top three positions will control around 85 percent of the revenue market share. Interestingly, credit analyst Ashutosh Sharma, in the report said that the raging telecom war has all the constituents of a ‘Hunger Games’ movie. The telecom sector in India has always been known to be very competitive as telcos keep vying for market share. But ever since the entry of Reliance Jio, the stress has aggravated the stress on the incumbents.
The Hunger Games is an American dystopian science fiction adventure movie. Set in a post apocalyptic future there are 12 districts, where a boy and a girl from each district, must take part in The Hunger Games. This game goes on until there is only one survivor left. Sharma, in the report, says, “The combination of rivalry, power plays, and elimination of the weak, has investors, financiers, analysts, and the government on the edge of their seats.” Jio’s entry in the telecom sector has wrecked the financials of most of its rivals. While they have been forced to lower prices on offerings, a heavy debt of close to Rs 5 trillion looms over the sector. The report added that the aggressive market play is proving to be ‘costly’ for competitors, as telcos are burning cash in the middle of a ‘brutal competition for market share’. S&P in the note said,”We expect a consolidation in the telecom sector, with the top three telcos (Vodafone-Idea, Airtel and Jio) eventually controlling 75-85 per cent of revenue.”
Sharma said, “Jio’s aggressive tactics are a strain on the revenue, profitability, and cash flows of all the contestants in this game.” However, the report has claimed that the dust will settle in the next year or two. This essentially means that margins and cash positions of operators will be challenged further before they get better, the note said. On the revenue growth front, it said the declines will be at the lower end of the 5-10 per cent range for the top three players, while it will be sharper for Reliance Communications-Aircel, and the telecom arms of the Tata Group.
The agency expects the Mukesh Ambani led company will rationalise its competitive strategy at some point over the next year or year and a half and begin to focus on achieving sustainable revenue and margins.