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Tata Teleservices, Bharti Airtel merger is sign that honeymoon period for Indian telcos is over

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MG Arun
MG ArunOct 16, 2017 | 16:20

Tata Teleservices, Bharti Airtel merger is sign that honeymoon period for Indian telcos is over

Last week saw news of more consolidation taking place in the Rs 1.5 lakh crore Indian mobile telephony sector. After the merger of Idea Cellular with Vodafone was announced in March this year, it was the turn of the Mumbai-based Tata Teleservices to merge with Bharti Airtel, India’s largest telecommunications services provider.

The deal, done on a debt-free, cashfree basis (except for Bharti Airtel assuming a small portion of the unpaid spectrum liability of Tata’s towards the DoT), will see Bharti Airtel absorb Tata’s consumer mobile business operations in 19 circles in India — 17 under Tata Teleservices Limited or TTSL and two under Tata Teleservices Maharashtra Limited or TTML.

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Photo: Mail Today

Airtel will now be able to further bolster its spectrum footprint with the addition of 178.5 MHz spectrum in the 850, 1800 & 2100 MHz bands (telecom service providers operate under various frequency bands, where the signal wavelengths travel longer distances in lower frequency bands).

Such a shakeup in the sector was expected, ever since the entry of Jio into the market in September 2016, and garnering nearly 11 per cent market share as on July this year. But in Tata Tele’s case, the deal also caps several years of losses on investments in both CDMA and GSM networks.

Its accumulated losses stood at Rs 38,175 crore as of March 2017, while the debt pile is a huge Rs 40,000 crore. Tata Sons has reportedly invested at least Rs 50,000 crore in the business over the past two decades. The Tatas also had to settle arbitration with erstwhile telecom partner Docomo of Japan by making a payment of $1.17 billion (Rs 7,567 crore) to the latter after the partnership broke down.

With the entry of Reliance Jio, things took a more critical turn for telcos. The average revenue per user or ARPU, a measure of the profitability of telcos, declined on a sequential basis in each of the quarters during the period September 2016 quarter to June 2017 quarter, due to a price war that Jio had triggered. Jio had offered its data services virtually free the first few months, and voice, free for a lifetime. “Keeping a check on market share remains important for the telcos as ARPU for the industry remains low due to predatory pricing and intense competition going on in the sector,” says ICRA in a report.

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Photo: Mail Today

Prices of data have been cut up to 67 per cent over the past six months. Profits of Airtel, plunged 72 per cent to Rs 373.4 crore in the last quarter of 2016-17 as it slashed tariffs to retain customers, while Vodafone India’s operating profit for the financial year fell over 10 per cent. According to CLSA, a brokerage, India's mobile industry revenue fell for the first time in financial year 2016-17 to Rs 1.88 lakh crore and will decline further to Rs 1.84 lakh crore this fiscal.

Further to a squeeze in revenues. Telecom service providers also have to bear the brunt of high fees they have to cough up for procuring licenses, spectrum usage charges that they have to pay the government every year and instalments towards auction payments to the government each year as a percentage of their adjusted gross revenue. While the adjusted gross revenue grew a mere 6.8 per cent in fiscal 2016, the pay out to the government rose to 24 per cent. Reports say the telecom industry bought spectrum worth Rs 3.45 lakh crore since 2010, partly on upfront payment and the rest as deferred payment till 2028-29.

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Photo: Mail Today

With the Idea-Vodafone merger, Tata’s exit from the telecom business by merging it with Bharti Airtel, and the now-aborted attempt by Anil Ambani led Reliance Communications, to merge its telecom business with Aircel to pare debt, the telecom sector is in the midst of a major churn.

With the merger with Airtel, Tata would have just saved some 5,000 jobs at Tata Tele, but it is still not clear how many of these employees Airtel would ultimately retain. RCom has laid off some 1,200 people, and both Idea and Vodafone are also planning to lay off staff by the thousands by the time the merger is fructified.

Overall, the telecom industry is set to lose around 1,50,000 jobs as they struggle to contain costs in an increasingly challenging environment. Consumers would not mind all these, as long as they get improved services. But for Indian telcos, the honeymoon period is over, and only the fittest, and one that offers the best in services will survive.

(Courtesy Mail Today)

Last updated: October 16, 2017 | 16:20
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