Reliance Jio offloads towers to settle Government bill

Telecoms disruptor Reliance Jio has been forced to sell its tower assets to Brookfield Infrastructure Partners for approximately $3.55 billion.

While Reliance Jio is not feeling the pinch as painfully as its competitors, the business is facing a significant financial outlay to settle a spectrum fees dispute which has been on-going for more than a decade. With 25,215 crore Rupees (c.$3.551 billion) in compensation for the tower infrastructure business, Reliance Jio should be in a healthier position, albeit a bit lighter on assets.

“We are pleased to enter into this long and strategic relationship with Brookfield, which is one of the largest and most respected managers of infrastructure assets globally,” said Mukesh Ambani, MD of the Reliance Industries group.

“We are confident of Brookfield’s abilities to manage this large portfolio of high-quality infrastructure assets and further enhancing value creation opportunities. This transaction demonstrates the belief of global investors in the potential of India’s digital opportunity.”

Although the disposal of assets, or at least 100% ownership of said assets, is not an entirely comfortable position for the telcos to be in, it is becoming increasingly commonplace around the world, for a variety of reasons.

Telefonica has been playing with the idea of an IPO or partial sale of its tower infrastructure business unit, Altice has recently sold off 49.99% of its newly separated wholesale business and Vodafone created its own standalone tower business mid-way through the year. These are examples of asset divestment, though it is to fuel the expensive jobs of 5G and fibre broadband. The India situation is of course slightly different, though it has the telcos frantically searching for additional cash.

An argument over the total amount telcos owed for spectrum fees came to a conclusion in recent weeks, with the courts ruling in favour of the Government. Unfortunately for the telcos, this means over a decade of licence fees, interest and missed payment penalties will now have to be settled. For Bharti Airtel it has meant asking the Government for relief, Vodafone Idea have threatened to shut the whole business down and Reliance Jio is offloading its tower business to Brookfield.

While annual licence fees for spectrum are common place, such lengthy legal cases to dispute them are not. In a healthy regulatory environment, the telcos complain but generally accept the prodding and poking of authorities. Considering the friction which is being witnessed between the telcos and authorities in India, this is anything but a healthy situation. Whether it is charging too much for spectrum, favouring certain telcos or mis-managing termination regulation, the Indian landscape is quickly turning into a farce.

The Telecom Regulatory Authority of India (TRAI) and the Indian Government are slowly killing off competition and sleep-walking the country towards a monopoly.

Vodafone Idea threatens closure over $13 billion fine

Vodafone Idea has stated it will shut-down its business unless relief is offered by the Indian Government for the $13 billion demands which have been directed at the firm.

Speaking at a conference in New Delhi, Vodafone Idea Chairman Kumar Mangalam Birla has threatened to compromise the competitive landscape in India even further in light of the monstrous spectrum bills which have been handed to the telcos. This is an argument which has been on-going for more than a decade, though the penalties and interest fees may well cripple Vodafone Idea.

“If we are not getting anything then I think it is end of story for Vodafone Idea,” said Birla. “It does not make sense to put good money after bad. That would be end of story for us. We will shut shop.”

This dramatic statement from the Chairman specifically links back to a dispute concerning spectrum licence fee payments, as well as additional interest and penalties. Ultimately, the telcos could be liable for an eye-watering 1.47 Indian rupees, roughly $21 billion. Looking at the bigger picture, this is further evidence the Indian Government and the Telecom Regulatory Authority of India (TRAI) is unable to manage the market effectively.

Looking at the fine, the Indian Government has stated the licence for spectrum requires the telcos to had over a proportion of revenues during the period which the licence has been held. The debate is over how much is owed, as the telcos seem to believe it should only be revenue associated with the spectrum, while the Government does not.

The saga itself was elevated to the High Court, with the Judge ruling in favour of the Government. With the monstrous bill standing, both Vodafone Idea and Bharti Airtel have petitioned for relief. Reliance Jio is also facing the same fees, interest and penalties, but as it has only been operational since December 2016, the financial burden is significantly less.

For Vodafone Idea, despite the on-going potential for profits in India, it appears the financial stress is simply getting too much. The shifting dynamics of competition in India have already forced a merger between Vodafone India and Idea Cellular, and it will get to a point where the out-going cash makes it in tolerable to continue operating in the country. It seems the point of no-return is looming large on the horizon.

From a revenue perspective, you can see this is a market which is in trouble. There is significant potential for upshot as digital takes hold, though the telcos will have to weather the storm.

  Industry Revenue (Rupee, Billions)
Q1 2019 390
Q4 2018 432
Q3 2018 426
Q2 2018 469
Q1 2018 440
Q4 2017 435
Q3 2017 466
Q2 2017 493
Q1 2017 505

With tariffs set to increase between 15-40% over the coming months, the overall revenues in the Indian telecoms market will increase, though it might be a matter of too little, too late for Vodafone Idea. As you can see from the quarterly revenues, a significant chunk of cash has been taken out of the market through Reliance Jio’s aggressive pricing strategy, forcing consolidation and crippling competition.

Taking a view of the bigger picture, this is another example of the Indian authorities ineffectively managing the telecoms market. The Government and regulator have been attempting to drive India forward into the digital economy, but the aggressive pursuit and favour granted to market disruptor Reliance Jio is crippling the traditional telcos.

With Vodafone India and Idea Cellular merging, Telenor and Reliance Communications exiting, Tata being acquired by Bharti Airtel, the state-owned telcos only surviving because of Government hand-outs and Bharti facing similar financial burdens, it seems only Reliance Jio is in a healthy position. In pursuit of digital glories, authorities have placed India on a fast-track to a monopolised telecoms market, which is not healthy for anyone.

Vodafone and Bharti set to raise prices help pay government bill

Beleaguered Indian operators Vodafone Idea and Bharti Airtel have indicated they will need to start charging their customers more.

Neither of them explicitly blamed the massive government bill they’ve been asked to pay for the unspecified price hike, but the fact that it has happened so soon after they got the bill and that they made the announcements almost simultaneously means it’s very unlikely to be a coincidence. The increase will kick in at the start of next month.

“To ensure that its customers continue to enjoy world class digital experiences, Vodafone Idea will suitably increase the prices of its tariffs effective December 1, 2019,” said Vodafone Idea in a statement to Business Standard. “The acute financial stress in the telecom sector has been acknowledged by all stakeholders and a high level Committee of Secretaries headed by the Cabinet Secretary is looking into providing appropriate relief.”

“The telecom sector is highly capital intensive with fast changing technology cycles that require continuing investments,” said Bharti Airtel in a statement to the Economic Times. “It is, therefore, extremely important that the industry remains viable to support the vision of Digital India. Accordingly, Airtel will appropriately increase price offerings in the month beginning December.”

Their nemesis Reliance Jio announced a month ago that it was going to start charging for stuff it had previously given away for free, which led to some muttering. Now that its competitors are also raising their prices it’s clear that the government cash grab will ultimately cost regular people. Vodafone and Bharti will be hoping their customers don’t punish them too much for this move, but it will surely lead to them losing some more business to Jio.

The Indian telecoms crisis shows no sign of abating

The Indian government is showing no sign of backing down on its demands for massive payments from Bharti and Vodafone.

Bharti Airtel took an exceptional charge of around $4 billion on its latest quarterlies, to account for most of the bill presented to it by the Indian government for historical license fees. This follows a letter sent by the Indian Department of Telecoms demanding they pay up on timely fashion.

“On the AGR verdict of the Hon’ble Supreme Court, we continue to engage with the government and are evaluating various options available to us,” said Bharti Airtel boss Gopal Vittal in his comments on the quarterlies. “We are hopeful that the government will take a considerate view in this matter given the fragile state of the industry.” The charge indicates they’re not that hopeful.

Meanwhile Vodafone CEO Nick Read had a bit of a moan about the situation during his own earnings call earlier this week. This doesn’t seem to have gone down too well back in India, with government officials expressing their displeasure to the Indian media, according to the Standard. Read seems to have slightly retreated from his previous position, but not much. His underlying point that there is rapidly diminishing incentive to put up with all this aggro remains.

It looks like the best Voda and Bharti can hope for now is a bit of relief on the government bill, but they’re still going to have to shell out a lot of rupees. What this will mean for the future of the Indian telecoms market is unclear. Presumably Relaince Jio will be in a stronger position than ever to differentiate itself through network investment, which will surely have a negative effect on competition.

Jio accuses Indian cellular trade body of foul play

India’s leading mobile operator group thinks the fact that the trade body lobbied on behalf of two others is proof of bias against it.

The trace body in question is the Cellular Operators Association of India (COAI), which apparently wrote to the Indian government yesterday to lobby for some kind of assistance for its members: Vodafone Idea and Bharti Airtel. The thing is Reliance Jio is also a member of the COAI and presumably doesn’t want its competitors to get extra help, so it’s not happy about the letter.

Jio communicated its displeasure at considerable length in a letter of its own to the COAI, which it also shared with Indian media. It characterised the COAI letter as having alleged an unprecedented crisis in the telecom industry and said it was shocked that the letter was sent before Jio had had the opportunity to contribute. It went on to say this is typical bad behaviour by COAI, which calls into question just how shocked Jio actually was.

“Evidently, submission of this letter… is another manifestation of COAI’s prejudiced mindset completely laced with the one-sided thought process,” continued the letter, warming to its theme. “By such unwarranted behaviour COAI has just proved that they are not an industry organization but just a mouthpiece of two service providers.”

It then bangs on about all the things that were wrong with the letter, which amount to the aforementioned bias in favour of Vodafone Idea and Bharti Airtel. Jio clearly doesn’t want its rivals to get any help from the government, and even went so far as to insist that the disappearance of its two main competitors wouldn’t harm competition, which feels like a bit of a reach.

Neither the COAI nor the Indian state seemed to have responded to the letter at the time of writing, but they both seem to be stuck in the middle of an increasingly acrimonious war between Jio and the incumbents whether they like it or not. This is what happens when the state pokes its nose into the commercial sector too much. It created a very benign regulatory environment for Jio and is now staring at a potential monopoly. Nice one.

Jio starts charging for calls and its punters aren’t happy about it

Disruptive Indian operator Reliance Jio has announced it will start charging its customers for calls to other networks due to a regulatory change.

Until now Jio had been swallowing the 6 paise (hundredths of a rupee) per minute interconnect usage charge (IUC) incurred when its users called someone on another network. This formed part of the super-aggressive pricing strategy designed to steal market share from the incumbents, which was an unqualified success.

The cunning plan seemed to be to follow the classic internet business model of focusing on building up a massive user base first, then working out how to get cash out of them later. But now Jio seems to be going back on that and is looking to recoup that IUC from its users, who aren’t too happy about the sudden moving of the billing goalposts.

Jio is insisting it’s just as much of a victim in this situation and is only introducing the charge because the Indian telecoms regulator – TRAI – is mucking it about over plans to scrap the IUC entirely next year. In the press release announcing the news charge Jio goes into great length about how often TRAI said the charge would be scrapped by the end of this year, but then claims it’s having a rethink – hence the new charges.

As well as blaming TRAI, and also to some extent the other operators, who it accuses of some kind of poor form too arcane to dwell on, Jio is also attempting to sugar the pill by throwing in some ‘free’ data in exchange for money spent. Free must have a different meaning over in India. Here’s the table it has sent its punters announcing the new state of affairs.

jio voice call charges

If Indian Twitter is anything to go by, this hasn’t gone down well among the millions of Indians who switched to Jio, seduced by all the actual free stuff, as opposed to free stuff you have to pay for. The hashtag #boycottjio is trending, with the tweet below a typical example of the kind of stuff it’s yielding.

We don’t know why TRAI is having another look at this IUC thing; maybe Jio has been naughty, maybe the other operators have lobbied against it, maybe TRAI just thinks Jio is getting a bit big for its boots and need knocking down a peg or two. Alternatively the TRIA decision could be nothing new and Jio is just using it as a smokescreen to start taking back some of its freebies. Regardless of the reasons this may represent Jio’s first major setback since taking the Indian telecoms world by storm. This video alone is unlikely to resolve it.

 

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.

Jio surges forward with subs and profits

Reliance Jio has unveiled its latest quarterly figures and, surprise surprise, subs are once again on the up as well as profits.

Monthly ARPU might have be on the decline, down to $1.77, a trend which is not showing signs of slowing, but scale seems to be the answer for Jio. The firm now has a subscriber base of 331 million, adding 24.5 million over the last three months and 116 million during the last year.

“Growth in Jio mobility services has continued to surpass all expectations,” said Mukesh Ambani, MD of Reliance Industries, Jio’s parent company.

“In less than two years of commercial operations, Jio network carried almost 11 Exabytes of data traffic during the recently concluded fiscal quarter. Jio management is focused on giving unmatched digital experience at most affordable price to every citizen of the country, and accordingly expanding the network capacity and coverage to keep pace with demand.”

The progress which has been made by the firm over the course of the last two years is remarkable and perhaps demonstrates how under-developed the Indian market actually was. Although India has been seen as a growth economy, part of the now old-fashioned BRICs group, it wasn’t until Jio shook up the market the digital revolution took hold.

Average consumption of data is now up to 11.4 GB a month, with Jio suggesting customers used 10 exabytes over its network during the quarter. The Indian consumer certainly has an appetite for data and they don’t seem to be satisfied whatsoever.

Looking at the financials, these are also very promising. Early criticism of Jio was that it was negatively impacting competition in the market as there was little profit being made by the firm. This is generally seen as a negative, as running loss leaders to kill off competition very rarely works for the greater good in the long-term, though the numbers speak for themselves.

Quarterly revenues increased 44% year-on-year, while the firm collected profits of $119 million, a 45% year-on-year boost. These numbers are attractive for the moment, but profitability currently looks to be reliant on scale and subscriber growth. Sooner or later, this growth will slow, and the team will have to look at the worrying rate at which ARPU is declining.

Period Q1 2019 Q3 2018 Q1 2018
ARPU (Indian Rupee) 122 130 154

Vodafone Idea has had enough of toe-to-toe Jio battle

Vodafone Idea has contacted subscribers to confirm the end of its ultra-low-priced data tariff as it shifts towards ARPU over scale.

According to The Economic Times, Vodafone Idea is following in the footsteps of Bharti Airtel to end its lower cost data tariffs. These might be attractive to Indian consumers and do encourage the overall subscription numbers, but the dent which has been put in ARPU figures seems to be too much to stomach anymore.

The SMS states:

“Dear Customer, your current Idea post-paid plan is no longer valid from 10-July-2019.You will be upgraded to Nirvana 399 with benefits of unlimited voice calls, 40 GB high speed data and 100 L/N SMS.”

Although the telco is asking subscribers to effectively double their monthly bill, the new data plan does also include year-long subscriptions to Amazon Prime, Prime Video and Prime Music, as well as other bundled TV services.

For Vodafone Idea, this is perhaps a move which has been on the horizon for some time.

When Jio entered the market, it offered a service which drastically undercut anything from the incumbent players. This loss-leader position threw the market into chaos, with profits being slashed everywhere and telcos disappearing from the landscape. The remaining players had to create tariffs which were competitive, such was the queue of consumers waiting to switch to Jio, but they would also have to stomach significant blows on the financial spreadsheets.

What this move does suggest is that Vodafone Idea is willing to sacrifice subscriber scale, focusing on higher-value services and customers. It will see market share drop, but if there are greater profits on the horizon, investors might be happy with the outcome.

Jio is unlikely to follow suit, why would it if it is profitable at the same time as cheap, but this doesn’t mean Vodafone Idea is in trouble; there will be a market for higher value services in India and this is just a different way of doing business.

What this does suggest is that Vodafone Idea cannot tolerate the toe-to-toe battle with Jio. It seems it cannot be beaten at its own game, so perhaps it is a better idea for Vodafone Idea to carve its own niche in the Indian telco environment.