Bharti Airtel chairman Sunil Mittal has termed the tariff plan of rival Reliance Jio as very aggressive and unsustainable and said that it will not put an end to a tariff war.
Bharti Airtel chairman Sunil Mittal has termed the tariff plan of rival Reliance Jio as very aggressive and unsustainable and said that it will not put an end to a tariff war as incumbents would be compelled to come up with more competitive plans and additional data offerings. However, Mittal said that Jio’s decision to start charging customers from April 1 is good news. Speaking to reporters on the sidelines of the Mobile World Congress, the Bharti chairman said that incumbent operators would have to respond to Jio’s tariffs by bringing in more packages. “Tariffs that they (Jio) have announced are still very aggressive, which means you got to respond.
You got to do more packages… You have to throw in more data. All those things need to be done,” he said. “The good news is that eventually they have announced that they will charge from April 1. But yes, still to our mind, it is the pricing which is unsustainable; 1GB a day (of data) for that price is pretty low. It is better than zero (free services),” he added.
In one of the first steps, Bharti decided on Monday not to charge domestic roaming from April 1 and reduce international roaming charges by up to 90% through its special packages. However, as signalled by Mittal, there’s more to come. With Vodafone and Idea talking about a merger and Bharti recently acquiring the smaller operator Telenor India, Mittal said that consolidation would ultimately see only three operators in the country.
“When we went from two to four operators it was okay, maybe four to five was also fine, but I don’t know why we went all the way to 12 operators. If we look back, $20-25 billion of money has been written off. That is not a small amount of money, you could have built roads and bridges and what all from that.”
He said that consolidation is being dictated by “market economics”. “There is no business case. Telecom industry is not like putting up a fertilizer plant or refinery or a steel factory that keeps on producing year after year with repair and maintenance. You need to invest more and more money every year. If Airtel has a single digit ROCE (return on capital employed), you can imagine where Voda-Idea are, and Jio of course will be some time away.”
Pitching for affordable spectrum pricing, Mittal said it has gone “out of control” in the last few years and currently industry is spectrum surplus and would not need an auction at least in 2017-18. “Whatever has been paid in the last three to four auctions is not sustainable to give the low-value proposition to the customers,” he said.
Allaying concerns that Bharti could also end up posting losses in the January-March quarter as Idea did in Q3, Mittal said that the company’s balance sheet remains “healthy and strong”, and he does not think it will go into losses under competitive pressure. However, he added that one can “never say never”. “These are functions… but we have tanked up a lot of spectrum, we have obviously to pay interest on that but we still have close to $5 billion in Ebitda and we generate over a billion dollar in free cash flow. While the return on capital has become a dismal single digit, I think Airtel’s balance sheet remains healthy and strong,” he said.
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Asked how long his company will continue to feel the impact of Jio on its earnings, Mittal said that overall, he expected that by March 2018 the “dust will settle down” for the entire industry. “I would say watch out for March ’18… That will be the milestone. March ’18 is when this industry dust will settle down. It takes about a year. They (Jio) are going to charge from April 1, so by March of 2018…you will start to see a new order emerging out of this industry,” he said.
He also ruled out an exit from Africa operations, but said Bharti would explore merger and consolidation in certain African markets where it is not among the top two players.