Indian Supreme Court takes another step towards telco duopoly

The Indian Supreme Court has rejected a plea from Vodafone Idea and Bharti Airtel to defer disputed spectrum licence fee payments, making the collapse of Vodafone Idea a realistic outcome.

While the dispute has been on-going for more than a decade, it has intensified considerably over the last few months. Vodafone Idea and Bharti Airtel are liable for roughly $7 billion each in payments, thanks to penalty fees and interests, and have been attempting to negotiate better terms.

The plea to the India Supreme Court, where the telcos asked for interest fees to be dropped and the sum to be payable over a ten-year period, has now been officially rejected. Vodafone Idea and Bharti Airtel now have until March 13 to make the payments to the Indian Government in full.

The question which now remains is whether the death of the Vodafone Idea business is anything more than a matter of time.

The dispute in question concerns license fees which the telcos are liable for. As part of the licence, the India Government is entitled to a slice of the profits, though what this percentage is and what it is a percentage of is the centre of the argument. As this disagreement has been on-going for more than a decade, the penalty and interest fees have been adding up to an eye-watering amount.

Despite pleas to ease the financial burden of these penalties, the Indian Government and regulator have remained stubbornly resolute. Now it appears in might be a case of ‘cutting off the nose to spite the face’.

The Indian Government has always looked quite self-serving when it comes to working alongside the telecommunications industry. It has seemingly looked at the market as a short-term money-tree, as opposed to a long-term stimulant to the greater economy. Spectrum auctions are another example of this, with the valuable, scarce and limited resource often going unsold at auctions as the telcos complain of the financial commitments.

Now the greediness of the Indian Government is seemingly coming back to haunt it as the threat of competition being dwindled to a duopoly, a very dangerous position to be in, becomes much more realistic.

At the time of writing, shares in Vodafone Idea were down 22%. Vodafone Group CEO Nick Reid has already suggested the business would not be prepared to invest anymore capital in India without assistance from the Government, with the latest ruling adding another nail in the coffin. The financial liabilities being placed on Vodafone Idea could very realistically cause the firm to shut up shop in the near future.

For the Indian telecommunications industry, this would be a disaster.

Telco Market share
Reliance Jio 32%
Vodafone Idea 29%
Bharti Airtel 28%
BSNL 10%
MBNL 0.2%

BSNL and MBNL are effectively being propped up by the Government currently, meaning the market has in-effect three mobile players. There of course used to be much more competition, but thanks to the Reliance Jio pricing disruption, Telenor, Tata and Reliance Communications exited the market, while Vodafone and Idea Cellular merged into a single entity in 2018. Competition is at a very weak point, and it now looks like it will become even more feeble.

If Vodafone was to cash in its chips, Idea Cellular will unlikely be able to revive its business. The merger was driven by survival after all, meaning the collapse of the third major MNO. A market duopoly is not healthy, especially when one of the competitors is already battered and bruised and facing the same monstrous fine as Vodafone Idea.

Bharti Airtel has suffered as much as any other telco since the arrival of Reliance Jio. As India is the domestic market of the telco, it is highly unlikely doors will close, but the Supreme Court decision will also hold Bharti Airtel to payments of roughly $7 billion. As the market heads towards an informal duopoly, the former-market leader could be weaker than ever.

On the other hand, as Reliance Jio only entered the market in 2016 its own spectrum fee bill is considerably less. It is still an uncomfortable amount, though the firm managed to sell off its tower assets to settle the amount. It might be a bit poorer for the saga, but it is in a considerably healthier position than any of its rivals.

The Indian authorities have done what can only be described an atrocious, amateur and absent-minded job of managing its telecommunications industry over the last few years. It seemingly favoured Reliance Jio to the long-term detriment of competition, was unable to price spectrum appropriately for decades, and in this example, is stubbornly demanding its dues. The authorities cannot be held to ransom by a diva-like demands of telcos, but the risk of a Vodafone Idea collapse is very high.

Vodafone Idea looks to be at breaking point, Bharti Airtel doesn’t have two rupees to rub together and Reliance Jio is laughing. The Indian Government is proving to be incompetent at managing a healthy and sustainable telco market.

Indian government backpedals over operator fees

Indian officials have reportedly been told not to take ‘coercive action’ if Vodafone Idea and Bharti Airtel don’t pay their massive bills by today’s deadline.

The news comes courtesy of the Financial Express, which reports that the department of telecoms has decided not to do anything when the two operator groups fail to pay up. And it knows they won’t because they have told it as much, apparently. Last week the Indian Supreme Court refused to review its decision demanding the payment of historical license fees plus fines sand interest.

Reliance Jio, which owes far less because it hasn’t been around for long and is owned by India’s richest man, has paid-up, we’re told. It looks like the pretext for this fresh concession from the government is a fresh round of appeals from the two operators, but the real reason seems to be that they’re increasingly calling the government’s bluff over this cash.

Vodafone has previously indicated it might just pull out of the country entirely if the bill is not at least reduced and the Indian telecoms market has undergone dramatic change and consolidation in the past few year, with Jio emerging as a dominant force. The government has put itself in the position of effectively destroying its telecoms industry with a series of missteps and the incumbent operators seem to be betting it lacks the will to robustly chase the debt. This decision indicates they may well have a point.

Indian Supreme Court rejects telcos appeal over government bill

The billions owed by Vodafone Idea and Bharti Airtel for historic license fees must be paid after the Indian Supreme Court rejected their appeal.

The two massive operator groups appear to be running out of options, having spent the latter half of last year first contesting the fees, then begging for clemency and then finally threatening to exit the market if they’re given no relief over their massive financial burden. Typically the Supreme Court is where you turn to when you’ve tried everything else, but in this case it was that same court that enforced the fees last year.

Reuters reports that it’s specifically petitions seeking a review of last year’s order that have been rejected, indicating that the Supreme Court has seen nothing since then to persuade it any mistake was made. In today’s money Vodafone Idea owes £3.9 billion and Bharti Airtel $3 billion. This decision is sure to bring a fresh wave of existential angst from the beleaguered operators.

So what next? There will be talk of further petitions and that sort of thing but it looks like the Supreme Court is not for moving. That just seems to leave the political angle. The money is owed to the government, so it’s presumably within its power to at least ease the burden. In most countries MNO competition is considered vital to a healthy telecoms sector, but the way the Indian government has acted since the creation of Reliance Jio suggests otherwise in India.

China Mobile reportedly chasing cloud JV with Vodafone Idea and Bharti Airtel

Reports have emerged suggesting China Mobile is attempting to create a joint-venture in the Indian market to capitalise on the growing cloud segment.

Although these are nothing more than rumours for the moment, Live Mint has suggested senior officials from China Mobile have been in separate meetings with both Vodafone Idea and Bharti Airtel to set-up a joint-venture to tackle the cloud market.

“The top executives of China Mobile met senior managements of Bharti Airtel and Vodafone Idea separately in December,” stated an anonymous source. “China Mobile is interested in the Indian market and wants to come as a holding company with either of these two companies or even both.”

China Mobile has been aggressively growing its presence in the Chinese cloud market, though now it appears to be looking overseas for increased opportunities. India will of course look like an interesting opportunity, not only because of the size but the current market dynamics.

It is not overly complicated to understand the potential of India cloud market. As the second-most populous country on the planet, there are plenty of customers, though the drive towards digital has been very aggressive in recent years thanks to the disruption of Reliance Jio, effectively democratising digital. Attention has largely been paid towards the fight for consumer subscriptions, though the cloud market has also been growing.

As it stands, Bharti Airtel has a cloud services unit in ‘Airtel Business’, while it is also expanding its data centre footprint through ‘Nxtra Data’. Vodafone and Idea brought together their business units following the overarching merger between the telco parent companies and have also been working closely with Microsoft in recent months. Finally, Reliance Jio has a cloud business which was launched in August.

But it is the untapped potential which is getting foreign corporations excited. The digital economy is in its embryonic growth stages today, and the right investments could lead to significant gains in the future. Unfortunately for the Indian telcos, the current financial climate is not particularly helpful to speculative investment or aggressive expansion.

The Indian telcos are almost broke. A three-year long pricing war has crippled the spreadsheets, while the spectrum licence fee bill from the Government is eye-wateringly large. The Indian telcos are not in an attractive financial position, but this presents bargain opportunities for foreign investors who have deeper pockets.

China Mobile certainly fits into that category, and this could be a very co-beneficial relationship. China Mobile want to spread its cloud wings abroad through its investment arm, China Mobile Investment Holdings. India has an opportunity and the Indian telcos do not have the cash to capitalise on the potential today. Chinese money would certainly be welcomed to fuel the initial venture into the Indian cloud.

Interestingly enough, this could also have an impact on the geo-political tensions which have dominated the news for months.

The US does not like China, this is somewhat of an understatement, and it has been pressurising the Indian Government to break ties with Chinese infrastructure vendors. The emergence of a joint-venture, partly funded by a state-owned Chinese telco is not likely to have a positive effect on the already strained relationship between the US and India.

Consumers won’t be happy, but an Indian price hike is necessary

Reliance Jio is the latest Indian telco to announce an increase in mobile prices, but considering the precarious position the market is in, it is probably much needed.

Vodafone Idea and Bharti Airtel were the first to suggest a price hike was on the horizon, perhaps due to the $13 billion spectrum bill the government offered them, but Reliance Jio is not far behind. According to the Economic Times of India, the increased tariffs are necessary to fuel fresh network and technology investments.

This move might mean the constant flow of subscribers for Reliance Jio slows, and it may have a dampening impact on the aggressive expansion of the digital economy in the country. But these are short-term compromises which might have to be made for the long-term health of the industry.

Country ARPU ($)* Av. price per GB ($)** Av. monthly income ($)*** Percentage of income
United Kingdom 21 6.66 3,445 0.193%
India 1.6 0.26 168 0.155%
USA 32 12.37 5,238 0.236%
South Africa 6 7.19 479 1.501%
South Korea 27 15.12 2,550 0.592%
France 20 2.99 3,423 0.087%
China 7 9.89 789 1.253%
Finland 20.2 1.16 3,979 0.029%

* Figures from Ovum World Cellular Information Service

** Figures from Cable.co.uk

*** Figures from Worlddata.info

While the Indian consumer might not be thrilled by the increase in monthly costs for connectivity, it perhaps should not come as a surprise. As a percentage of monthly income, India does have some of the lowest mobile connectivity costs, price per GB, worldwide and as has been seen from the quarterly financials, the telcos cannot tolerate these tariffs for too much longer.

Over the last twelve months, quarterly revenues at Vodafone Idea have been slowly declining. It is difficult to come year-on-year financials, the combined entity isn’t old enough, but in the last quarterly earnings call the quarter-on-quarter results saw revenue decrease by roughly 4%. At Bharti Airtel, the story is very similar. Since Reliance Jio’s entry full-year revenues are only heading one direction, down, though it does seem to be picking up slightly for the second-half of 2019.

In 2016, India needed a disruption and it got it with the introduction of Reliance Jio. This is a market which was falling woefully behind international trends when it came to connectivity accessibility, but perhaps the current situation is an overcorrection. The price per GB is very low, offering more accessibility to the digital economy, but this is clearly not sustainable.

Vodafone and Idea merged to make a single service provider, Telenor exited the market because of pricing pressures, Reliance Communications fought but ultimately lost, state-owned BSNL needs to be propped-up with government funds and Airtel is flagging. With insolvency rumours swirling around the merged Vodafone Idea business, it does appear Reliance Jio is the only healthy telco.

This does not paint the picture of a healthy telecommunications industry. Some suggest the market might be heading towards a monopoly, and it is difficult to argue when you look at the trends. Competition is a key word in almost every region, and it is dwindling in India.

Consumers might severely dislike the idea of increased mobile tariffs, but the current prices are certainly not sustainable; it looks to be a necessary evil. In comparison to other markets, there is perhaps room to increase prices in India.

In certain markets, the price per GB is far too high, it creates a digital divide, but India is the opposite end of the scale. The current pricing landscape might make the digital economy more accessible, but if it destroys competition in the long-run the final outcome will be a net-loss.

Reliance Jio becomes India’s number one mobile operator

Less than three years after launching Reliance Jio has overtaken Vodafone Idea and Bharti Airtel to become India’s biggest MNO by subscriber.

Jio announced it had hit 331 subscribers last week as part of its quarterly numbers announcement but, according to Ovum’s WCIS, that would still have left it just behind the recently combined Vodafone Idea group if the latter had even held onto its existing punters. Jio overtook long time Indian market leader Bharti Airtel in the first quarter of this year.

Vodafone Idea announced its own numbers late last week and they revealed that it continues to haemorrhage subscribers. “Our subscriber base declined to 320.0 million from 334.1 million in Q4FY19 primarily due to customer churn following the introduction of ‘service validity vouchers’ in the prior quarters,” opened the ‘operational highlights’ section of the report.

“We are delivering on our stated strategy although the benefits are not yet visible in our top line,” said Vodafone Idea CEO Balesh Sharma. “We remain focused on expanding our 4G coverage to over a billion Indians as well as expanding our data capacities by adding more sites on TDD and deploying Massive MIMO. We are well on track to deliver our synergy targets by Q1FY21. We expect these factors to increasingly contribute to our financial performance going forward.”

Returning to the WCIS numbers, the total number of mobile subscribers hasn’t increased that much in the three years that Jio has been operating, which means the third of a billion customers it now has have been largely taken from the incumbents. There has been a fair bit of consolidation, so it’s hard to make like-for-like comparisons, but it looks like Jio largely took subscribers from the smaller players initially, but in the past year has been hoovering up tens of millions of subscribers from its two big rivals.

Competition is obviously a good thing but if this trend continues Jio could become dangerously dominant in India and the country’s regulators and politicians may live to regret making it so easy for the country’s richest person to get off to such a flying start. The genie is out of the bottle now, though, and it’s hard to see how Vodafone Idea and Bharti Airtel are going to regain the initiative.

Bharti Airtel exploring acquisition of Telkom Kenya – report

Indian telco Bharti Airtel is reportedly in discussions to expand its presence in the Kenyan market through the acquisition of Telkom Kenya.

According to Reuters, the under-pressure Indian telco is meeting with Telkom Kenya executives to acquire the business, merging the number two (its own brand Airtel) and three players in the country. This is not the first time such a transaction has been discussed, though it is claimed London-based Helios Investment, which owns 60% of the business, is attempting to cash-out of the market.

While agriculture still remains the leading sector across the country, Kenya’s growth has been steady and diversifying in recent years. The country is the economic, financial, and transport hub of East Africa, and real GDP growth has averaged over 5% for the last decade, according to statistics from the CIA World Factbook. Mobile growth in the country is growing quickly, while the economy is increasingly looking mobile-first. This could be a very useful acquisition for Bharti Airtel.

In terms of market share, this is a country which is heading the right direction for Bharti Airtel. Safaricom is the market leader with a 67% share but declining, according to Ovum’s WCIS, Airtel has 23% market share and increasing while Telkom Kenya currently has 9% but is also increasing, albeit at a slower rate than Airtel. Supplementing the gathering Airtel momentum in Kenya with the Telkom Kenya footprint would certainly be a sensible business strategy to tackle the dominant Safaricom.

Another interesting factor to this deal would be the fixed line business. As it stands, Airtel does not have a fixed line offering in Kenya while Telkom Kenya does, and this is a segment which has been targeted for growth by the government. The National Broadband Strategy intends to deliver reliable fixed line broadband to as many as 30% of the Kenyan population, though you should always remember this is a mobile-first country. Fixed line might be a useful addition, but with mobile money dominating the economy (48% of Kenya’s GDP was processed over M-PESA between July 2016 and July 2017), this is very much a mobile-first society.

For Bharti Airtel, the team needs a win to report back to investors before too long. The emergence, and continued success, of Reliance Jio has been a nightmare for the former market leader, while an end to the misery seems unforeseeable right now. Profits at the firm have been impacted, subscriptions are going south, and the newly-merged Vodafone Idea business might cause more upset as it readies its own attempt at market disruption. Bharti doesn’t seem to have done much to combat the threat at home, though it does have a successful African business to bolster the numbers.

Looking at the most recent financial results, revenues across the group grew by a miserly 0.5%, though the revenue decline in India (which accounts for roughly 66% of the group total) was 3.6%. Africa on the other hand contributed 10.8% revenue growth and almost three million net additions in subscribers. The consolidated East Africa region brought in an additional 1.2 million customers over the period, while revenues in both voice and data have been steadily increasing over the last year. This is a stark contrast to the failures at home.

Bharti Airtel has lost the number one spot in India thanks to the Vodafone Idea merger, and should trends continue, it won’t hold onto number two for very long either. Catalysing the promising African market is certainly a sensible way forward, but onlookers should not be distracted from the chaos in Bharti’s domestic market.

Bharti said to be sniffing around RCom

Bharti Airtel is reportedly eyeing up Reliance Communications spectrum assets, which are currently being sold by lenders who are trying to recover Rs45,000cr in debt.

According to India Infoline, Bharti is making moves towards the assets, though Reliance Jio are also interested in the assets. RCom has been struggling for some time now, and is rumoured to be shutting down its voice services from next month. Perhaps we are about to see the beginning of a bidding war.

It certainly wouldn’t be the first time Jio has turned up and spoilt a Bharti Airtel party. Perhaps we should not be surprised by Bharti Airtel cracking open its wallet and trying to buy its way out of a difficult situation.

To counter the Jio challenge, we have seen a few different tactics. Vodafone and Idea for instance, decided there was logic in making friends. Combine two of the largest players and create a new market share leader. Seems like a good idea. Others, such as Telenor, decided they didn’t want anything to do with scary Jio and ran home to hide in the corner.

Bharti Airtel has taken what some people might describe as the more obnoxious route. Throw the cash around and buy everything in sight. Show everyone that you are likeable because you have a big bank account. Earlier this year it bought the Indian operations from cowering Telenor, and in October it purchased Tata Teleservices.

Who knows what the right response to the Jio challenge is, but at least Bharti is doing better than RCom.

Tata comes from nowhere to top Indian subscriber adds

The Telecom Regulatory Authority of India (TRAI) has released subscriber numbers for August, and somehow Tata Teleservices topped the net add list.

It still doesn’t quite have the numbers to compete at the top of the overall rankings, but if the subscriber numbers from August are anything to go by, Airtel has bagged itself a nice acquisition. In terms of the overall performance of the notable names in the market:

  • Tata Teleservices added 4.89 million subscriptions over the month
  • Reliance Jio has almost 4.1 million net additions
  • Airtel lost 765,000
  • Vodafone was down 2.4 million
  • 6 million subscriptions vanished from Idea’s ranks
  • Reliance Communications managed to misplace 4.6 million customers

Last month, Bharti Airtel agreed to acquire the ‘struggling’ mobile business of Tata Teleservices, in what is looking like some great business now. As part of the deal, all past liabilities and dues are to be settled by Tata, while Airtel would absorb the 40 million customers of Tata. According to TRAI, this number has now swelled by 11% without Airtel having to do a thing, taking market share to 3.96%.

Unsurprisingly, Airtel still stands at the top of the market share rankings with 23.7%, while Vodafone and Idea take two and three with 17.55% and 16.11%. The combination of these two would certainly make a monster business, but dropping a combined 5 million customers is a worry. We’re not too sure how many customers were exchanged between to two, but 5 million is still a very large number. Reliance Jio’s market share now stands at 11.19%.

Elsewhere in the Indian market, American Tower has been named as the acquirer of the standalone tower businesses of Vodafone India and Idea Cellular.

The pair have separately agreed to sell their respective standalone tower businesses in India to ATC Telecom Infrastructure Private Limited for an aggregate enterprise value of $1.2 billion. The combined portfolio has approximately 20,000 towers with a combined tenancy ratio of 1.65x. As part of the agreement, the trio have agreed to treat each other as long-term preferred partners.

Sharks circling Reliance Communications but Jio remains quiet for now

Reliance Communications rumours are continuing to swirl after a weekend of adverts and offers to lure customers away from the troubled telco.

The telco has been in a bit of trouble for a while as debts continued to pile up (supposedly in the region of $6.8 billion), and it would seem the attempted acquisition of Aircel could be the final roll of the Reliance Communications dice. Chairman Anil Ambani had promised cash reserves at Aircel would provide a more stable foundation for Reliance Communications, but both parties seemingly got sick of endless delays, abandoning any deal.

And the smell of blood has made its way to the noses of the cut-throat competitors; apparently the scavengers can’t even wait for the limping giant to die; the steaks are being carved out already. This weekend saw Bharti Airtel launch a number of adverts welcoming any Reliance Communications customers to their ranks, and Vodafone launch a referral scheme, promising a £1.50 kickback to any of its customers who can tempt family and friends into their ranks.

While Airtel and Vodafone are already tucking in, Jio has been relatively quiet. Perhaps this is a bit of family respect, although we understand Anil and Mukesh Ambani aren’t exactly best mates, or maybe it has something to do with a bit of acquisition in the future.

With one brother on the up and the other finding issues in the telco space, some have might believe Reliance Communications is an acquisition target for Jio. This does kind of make sense, as Jio has not exactly created a reputation for being considerate to competitors. It was after all Jio’s aggressive pricing strategy which was the beginning of all the pain in India.

Unfortunately for some, they were not able to live with the pace of change. Telenor withdrawing, Vodafone and Idea merging and Bharti Airtel grabbing Tata Teleservices, demonstrate the consolidation trends. Reliance Communications was supposed to contribute in a more positive manner by buying Aircel, but it could be on the worse end of the deal.

Just to be clear, a Jio acquisition has not been confirmed in any way shape or form, and our sister-site Light Reading reported Reliance Communications would close most of its wireless business over the next month. Apparently, most employees have been told November 30 would be their last day, and the company’s DTH license will expire on November 21. The decision has already been made not to renew this licence.

In days gone, Reliance Communications was known to have a fairly successful 3G-dongle offering, though with the industry moving towards 4G and competitors carving into this niche, the telco has struggled. Reliance Communications has already said 4G is going to be the primary focus as “irrational pricing by all industry participants have destroyed profitability of traditional 2G/3G mobile business”. The team can complain about the underhanded nature of competitor moves if it wants, but situation is actually very simple; the industry changed, Reliance Communications didn’t, and now it is no longer competitive.

The only question which remains is what will happen to the remaining business and its small operations in the 4G space. With Bharti Airtel and Vodafone already picking away at the rotting remains of the Reliance Communications customer base, an acquisition from one of these vultures seems unlikely.

Or maybe the business will find more favour in the 4G world and continue to operate on its own? Reliance Communications has preached about a 4G-focused strategy which would optimize its spectrum portfolio, eliminating the loss-making aspects, but something needs to change. The business is not competing with the new Indian heavyweights, and the pressure of debt looks to be swelling.

Perhaps a family reunion is the most realistic chance Reliance Communications will continue to be, otherwise it will likely be a continued erosion to non-existence.