Bharti-Tata Tele deal: Sunil Mittal's 14-yr-old prophesy looks real today

Mittal had predicted that there would eventually not be more than four players in the telecom sector

Nearly 14 years ago, Bharti Airtel Chairman Sunil Mittal had said in an interview that eventually there would not be more than four players in the telecom sector. With the announcement of merger between the Tatas' wireless business and  Bharti Airtel, Mittal's prediction is fast turning out to be a reality. It's a different matter that at that time he may not have factored in the mayhem the market is witnessing now due to the entry of Reliance Jio.

Today, the telecom map has shrunk considerably from as many as 13 players in 2008-09. Operators are jostling for users, offering them rock-bottom prices, while also bleeding with growing losses and piling debt. After a series of consolidations and winding-ups, only four players are likely to hold their ground, with three — Airtel, Idea-Vodafone combine, and Jio — accounting for over 90 per cent of all users. The fourth, smaller player, BSNL/MTNL — which would continue to be supported by the government, unless it decides to go for privatisation — might play a limited role. 

However, there is one part of the puzzle that still needs to be fixed for a full consolidation to take place. Reliance Communications (RCom) and Aircel, which together control nearly 15 per cent of the market and whose merger was called off a few days ago,  have to figure out their future. 

There is a consensus among analysts that RCom and Aircel, burdened as they are with over Rs 60,000 crore of debt on their books, cannot survive as independent entities anymore. And, their choices are limited.

They might sell off to one of the big three after they have found a solution to their debt overhang, as no buyer would be willing to take over their loans. RCom is expected to eventually align with Jio.

Analysts also say they could wind down operations and sell in parts, or simply declare bankruptcy. But they must make a decision soon with their market share eroding at a fast pace. RCom saw its subscriber share falling from 8.46 per cent in August 2016 to 6.85 per cent in July 2017. And, it has a revenue market share of only three per cent. 

In the TTSL as well as Telenor deals (where spectrum has been given for free to the buyer),  it has been amply demonstrated that the on-paper value of the once-valuable liberalised spectrum is just a myth. After all, it is now a buyers’ market, analysts like Kotak Securities say.  

For Airtel, the merger with TTSL has clearly been a positive. The company would be able narrow the gap with the proposed Idea-Vodafone combine, projected to be the largest player.

 Airtel, along with TTSL and Telenor (which it acquired the latter earlier this year), has a market share of 31.22 per cent according to July data, just a shade lower than the 34.34 per cent of the Idea-Vodafone combine. Additionally, the gap between the two rival combines, in terms of the share of the telecom revenue, would also narrow. While Airtel would now have 40 per cent, the Idea-Vodafone entity would have 41 per cent. These numbers, of course, would come down once Jio declares its full revenue from its telecom subscribers (currently its revenue share is only two per cent). 

The three big boys — especially with net addition of new customers growing at a tardy pace due to high market penetration — would look at picking up customers aggressively from RCom and Aircel, which still together have a substantial 174 million subscribers and about eight per cent share of total telecom revenue. 

Jio expects that through the Rs 1,500 feature phone offer, it would be able to woo a substantial portion of the 500 million customers who use feature phones but hardly any data. 

Analysts say Jio has an ambitious target to reach around 300 million customers, more than double of what they currently have. But that might be challenging, as incumbent operators are hitting back. Both Airtel and Vodafone have tied up with device manufacturers to take Jio head on. Airtel is already offering a smartphone at an effective price of only Rs 1,399. Most analysts believe that the new offer from Jio, especially with a commitment of Rs 150 per month, is not so attractive to see a large exodus. Also, analysts believe that Jio cannot play the pricing game anymore, as it also has to show returns to its shareholders on the massive investment. 

Analysts see various probabilities — if Jio picks ups RCom, it would get an additional 85 million customers, pushing its subscriber market share to 18 per cent and also get an additional three per cent of its share of the overall revenues. 

Whatever strategy Aircel eventually follows, the big three would woo its 90 million customers as it could make a reasonable change in their market share. Also, Aircel has a reasonable five per cent of the revenue share and is strong in some of the markets in the country.

The future position of Idea-Vodafone, of course, would depend on how soon they can complete the merger. An estimate is it would be done by the end of March. The combine is about six months behind Airtel in rolling out their 4G LTE network (Airtel expects to complete the roll out by March), and that could be crucial for them to take on Jio more effectively.