Indian government strives to save its dwindling telco industry

Government officials have reportedly been having meetings to figure out how the prospects for Vodafone Idea can be improved and three-way competition can be preserved.

Rumours have been circling the Indian telco space over recent weeks as it appears the industry is sleep-walking towards the death of Vodafone Idea and the creation of a defacto duopoly. One potential outcome in the immediate future would be invoking banking guarantees, a precursor to termination of telecom licences, according to the Economic Times, though this would be a worrying move.

With finance and telecoms ministers meeting in private, the objective could be to preserve a level of competition which is deemed adequate. Three private telcos should be considered the absolute minimum, though this is arguably too few for a nation the size of India. If the status quo is to continue concessions will have to be made.

What is actually being discussed behind closed doors remains to be seen, though reports are suggesting the Indian Government is seeking remedies to the precarious situation. This may well mean deferred or staggered repayments for the €7 billion spectrum bill being faced by both Vodafone Idea and Bharti Airtel.

The seriousness of the situation in India should not be taken lightly, though whether the Indian Government has the foresight to appreciate the damage which could be done in pursuing immediate repayment remains to be seen.

Vodafone Group CEO Nick Reid has repeatedly stated he would not be prepared to invest more capital in the market, or at least the vast sums which are being discussed today. It does appear Vodafone is prepared to wrap-up the joint venture between itself and Idea Cellular. Reid is perhaps looking at the big picture.

Vodafone is under pressure in several markets across the world. In the UK, it is spending significantly to bolster its current market share, while both Spain and Italy are presenting challenging environments thanks to heightened competition. India offers great potential, but $7 billion is a significant investment to remain in the hunt. At some point, executives will have to question when the end is nigh.

The ‘Chase Theory’ is usually associated with compulsive gambling, but it is also applicable here. As one of the simplest forms of gambling, the punter doubles down to recoup losses in pursuit of a theoretical gain. India is a market which offers great rewards due to a massive population and rapid digitisation, but it is proving to be a very costly pursuit. The last thing Reid will want to do is bankrupt his business chasing the hypothetical pot of gold at the end of the rainbow.

If the Indian Government does not introduce some flexibility into its mindset in dealing with the telcos, the market will soon devolve into a defacto duopoly. Admittedly, there are two state-owned telcos still in the fray, but these are providing next to no genuine competition. For a sustainable and healthy telecoms industry in India, the existence of Vodafone Idea should be considered priority number one.

The trickiest aspect of this discussion will be how to maintain credibility as an authority; the Indian Government needs to help Vodafone Idea, but it cannot be held to ransom by divas in the telecoms space.

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.

The death of Vodafone Idea starting to become a real prospect

Vodafone Group CEO Nick Read has reiterated his vow that no fresh funds would be injected into the Indian joint venture with Idea Cellular, painting a dreary picture for competition in the market.

As it stands, Vodafone Idea owes the Indian Government roughly $7.4 billion in spectrum fees, overdue payments and fines. Bharti Airtel is in a similar position, with both telcos pressing the authorities for relief. To date, the authorities are not budging, potentially undermining any commercial objectives for Vodafone in the region.

According to The Economic Times, Read has demanded the Government waive the penalties and interest payments, while also allowing Vodafone Idea to repay the principle sum over a period of ten years. Only if these demands are met, will Vodafone commit to continue the joint venture with Idea Cellular and push additional funds into the market.

This is a very stern statement from Read and one the Indian authorities should take very seriously. Numerous telcos have already left the market, and while it cannot be held to ransom by another, the competition landscape is looking suspect already.

The main issue here is a dispute over licence fees paid on spectrum assets. The telcos and the Government have different opinions on how much should be paid. This argument has been on-going for more than a decade, hence the ridiculous sums which Vodafone Idea and Bharti Airtel are being asked to pay. As Reliance Jio only came into existence in 2016, its own bill is much more palatable.

With extraordinary pressures already being placed on the spreadsheets thanks to the Reliance Jio disruption by undercutting existing pricing models, as well as a drive towards modernising infrastructure, this bill is the last thing the telcos need.

For Vodafone, you can see the predicament. There is a fortune to be made in India, but how much pain and expense can the business go through to realise it. The firm is facing difficulties in several other markets also; how many headaches can Nick Read tolerate at once? India might prove to be one migraine too far.

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.

Vodafone Idea reportedly looking to flog assets to cover government bill

Beleaguered Indian operator group Vodafone Idea has apparently been reduced to a fire sale of its fibre and datacentre assets to raise funds in a hurry.

The news comes courtesy of the Economic Times, which has been chatting to those handy anonymous insiders. They reckon Vodafone Idea has been in discussions with Brookfield Asset Management regarding the sale of its fibre business and with investment firm Edelweiss over the prospect of flogging its datacentre in Navi Mumbai.

Vodafone Idea apparently has 156,000 km of fibre buried somewhere in India, which is thought to be worth up to $2 billion according to bankers consulted by ET. Even the datacentre could raise $100 million, they were told. Having said that, since the Indian government wants at least $5 billion in historical license fees from the company, it’s unlikely to get full value from its asset sale thanks to its weak negotiating position.

An additional complication, according to experts quoted in the story, is the fact that the entire Indian telecoms sector is mortgaged to the hilt, so there simply isn’t that much cash circulating around it in total. This makes the decision by the government to call in these massive historical debts even more flawed. India seems to have dug itself into a very difficult hole with regard to its telecoms sector and it’s not obvious how it’s going to climb out of it.

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.

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.

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.