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Jan 19
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Is Government’s Arrival in The Indian Telecom sector a Boon or a Curse for It?

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Analysis of Government Arrival in The Indian Telecom Sector

Something has been committed by the Indian telecom sector that no analysts or experts had anticipated. Well, many might anticipate or might be concocting certain political blunders, this instant, the action is too complex and strategic.

The Indian government, in a recent turn of surprising events, has entered the telecom sector by picking up a stake in a telecom operator. This certain telecom operator was on the verge of a collapse just a few months ago that had wreaked havoc in the sector.

Thus, given the debilitating circumstances under which the government has come to rescue, a certain message by the government should be made clear.

Through such a takeover, the government has proved that it solemnly wouldn’t want the Indian telecom sector to become a duopoly. Here it is to be noted that the duopoly players could have been the Reliance Jio and the Airtel.

indian telecom sectorHaving stated the government’s response to the dying ambitions of the Vodafone, how did the market take the news? The market response, at best, can be described as disappointing and averse. This has been corroborated through Vodafone Idea’s shares dipping by as much as 19% in early trade after the brutal announcement was made.

This clearly suggests the market’s subdued enthusiasm over the government’s entry as a shareholder in the market.
But what could have led to such an averse and spooky behavior that was displayed by the market yesterday?

It is to be noted that the market is emphatically asking a single question: was there really a need for the government to take over yet another telecom?

History bears testimony to the fact that government-led organizations’ are a euphemism that is used for an unattractive, unprofitable, and low on efficiency organization. Thus, various questions are being raised on the government’s ability to steer the ship of Vodafone Idea.

This also comes after the government-run BSNL performance that hasn’t gone up the ladder of success for quite some time now.

telecom industry in indiaAre such fears unwarranted?

  1. But are such biased fears unwarranted? Many analysts would like to argue that this does not have to be the case. This is specifically due to the fact that such pessimism is unwarranted if the government will not meddle with the management of the Vodafone Idea.
  2. In fact, many experts will also like to present the opinion that perhaps such a takeover will actually prove to be useful for the stakeholders.
  3. This can be beneficial for both Vodafone Idea and BSNL MTNL’s subscriber base and the investors as a whole. There is a sound argument that if the two entities namely the BSNL and the Vodafone are merged, this could prove to be a timely profitable venture, especially with the arrival of the 5G era in the country.
  4. The pair can make a great match given BSNL’s pan India wired coverage and the Vodafone Idea’s wireless coverage. This could optimistically complement well each other and assist both the giants to make a competitive pair in the sector, giving the competition to the rivals Reliance Jio and Airtel.
  5. What can materialize into a successful story is the realization of synergy gains that can be due to the act of asset sharing agreement on 2G, 4G & later 5G.this could emphatically prove to be successful as the two companies will have an effective chance to leverage each of their assets and use their customer base to expand.
  6. This will emphatically and significantly help Vodafone to clear off its balance sheet and avoid the interest costs by effectively and strategically clearing the path for its profitability.
  7. However, it is to be noted that everything is easier in the theory than on the ground level. This too is true for the situation of Vodafone in the telecom sector.
  8. It might be delightful to narrate the synergy gain analysis, but it is quite easier said than done. With the government having a seat at the management table, things can go fairly south, quite quickly, just as it had been anticipated to go up.
  9. Where many are of the opinion that the government’s takeover can be a worse remedy for a dying Vodafone, very few have their faith in the government’s ability to turn the enterprise into a profitable venture.
  10. The government doesn’t only face the problem of a dying dream but also of different cultures that need to be integrated if the government wants to amalgamate an Indian company and a global company culture.
    telecommunication sector in india
  11. It is to be noted that the telecom sector in India has come a long way since 1991. The 1990s are the times that remind us of the Monopoly of state-run MTNL, BSNL, that had captured the market.
  12. Such a scenario can be seen playing out even today with the threat of Reliance -Jio and Airtel to capture the market burgeoning every day. Though, many might argue that since JIO’s inception Data prices have plummeted but given that it might be heading towards the monopoly position, such graces can in no time vanish.
  13. Certain legality issue that has come to the fore, with the government’s involvement in the sect
    or. It refers to the government’s role as a regulator and as a buyer and provider of service in the same sector.
  14. With the government governing the sector with its laws and regulations and also acting in the capacity of being an investor in the two largest telecom giants, can it be trusted to play fair and square? Certain analyst
  15. indian telecommunication servicesand experts have cast their doubts on the issue of the government playing two roles at once in a sector.
  16. Many fear that with increased inefficiency, the sector will also witness undue advantage through policies to nurture the same. Maybe the government will act responsibly, and the precedent will be set. But can such a motive be positively achieved; one has no choice but to be a bit dicey about it.
                                         But who will be responsible for the funding?
  17. Given the aforementioned fears and doubts that linger upon the leadership of the government, another unsettling fact has to be Vodafone’s urgent requirement for funds to expand its network capabilities for the 5G era.
  18. Though the recent tariff hikes might have eased the arduous nature of the problem, this is a temporary solution for the short-term cash flow crunch. Given, Vodafone’s odious conditions, it sure needs more than just a short-term CAPEX boost.
  19. Thus, before Vodafone is made a success story, its empty hollow coffers of opportunities need to be filled with conviction, Capex, and strategy.
  20. Will the government be able to work in the favor of the Vodafone Idea’s stakeholders and investors? Perhaps, it is something we’ll have to wait and watch, as the next few months will prove to be highly critical for the telco’s future.

 

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Sep 14
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Banks to Discuss Next Course of Action on Debt Laden Vodafone Idea

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Action on Debt Laden Vodafone Idea

What is Debt laden Vodafone Idea? Call it an ill-omened debacle or a case of poor strategy but Vodafone has brought its investors to the front of a despicable negotiation table. Negotiations that will include talks about the future course of action in regard to their exposure to the debt laden telecom player. It is to be noted that the telecom player is currently struggling to stay afloat.

Given the debt-ridden state of the telecom giant, quite rationally the investors and promoters have denied infusing cash into Vodafone’s Idea. Additionally, in much interesting turn of events, the apex Court has recently dismissed a plea for rectification of alleged miscalculation adjusted for gross revenue dues.

The revenue has to be played by the company to the government which is quite an aversive situation for the telecom giant. The Supreme court has also actively condemned the telecom operator to bankruptcy and has recommended that it can raise fresh capital. It is to be noted, that given Vodafone’s bankruptcy status, it quite unlikely that it will be able to raise cash in the market. As for its investors and promoters, they have denied infusing extra cash in the telecom giants to get it out of troubled waters.

As aforementioned, the prospects of fundraising for the company look quite bleak. But why are Vodafone investors actually denying the only chance to save the telecom giant? It is due to a pertinent fact that any new strategic investor will be pouring billions of dollars into the government coffers. This effectively means that the funds will not be strategically or effectively reinvested in the company to prepare it for the new 5G world but will be redirected to the government.

debt laden telecomIn addition to court proceedings, another potential discouragement that has come for various other investors is that Kumar Mangalam Birla has stepped down as non-executive director and non-executive chairman of Vodafone Idea. Additionally, much to the dismay of the telecom giant and its investors, he has offered the government to buy out Aditya Birla’s group’s stake in the company. Aditya Birla Group Chairman has effectively offered to hand over his stake in VIL to the government or any other entity so that Vodafone remains functional.

Given all the aforementioned, aversive situations, Vodafone’s Idea is highly unlikely to be able to service its gross debt. It is to be noted that the telecom giant’s debt stands at a whopping Rs 1.8 lakh crore. According to reports, the telecom operator owes at least Rs 28,700 crore to several state-owned lenders. If official data is scrutinized thoroughly, it can be noted that VIL had an adjusted gross revenue liability of Rs 58,254 crore. But it is to be remembered that the telecom operator has paid Rs 7,854.37 crore.

Given a major telecom giant is under immense financial stress, it is to be noted that Section 10 of the Insolvency and Bankruptcy Code can be used as a preference. The Sector 10 of IBC allows a company to file for insolvency after a payment default. But such a voluntary application requires a maximum shareholder approval I.e. of 75 percent. It is to be noted that the default required to trigger IBC can be a failure to repay bonds, a loan, or an operational debt.

In the case of Vodafone, it crippled the financial state of the company. Thus, given Vodafone’s delay in payment of financial dues, it can surely use IBC as a reason for default, or the AGR liability.

It is to be noted here that if Vodafone opts for this step, Section 10 might actually offer a protective umbrella because that is what it is intended for. This is quite apt for a company as it can trigger the proceedings under legitimate business failure.

On the other hand, it will not come as a surprise to many but banks in India have started marking Vodafone as a stressed company. IDFC is the first Bank that has marked Vodafone’s Idea as stressed. Additionally, the bank has also provided for 15 percent of the outstanding debt.

Given the Vodafone debacle, it can be seen in the near future that it could have a bearing on the earnings performance of these banks. This will be due to the fact that the banks will have to make hefty provisions against these ill-omened loan accounts.

Given that another telecom giant is defaulting on the economy, various concerns in the banking sector have been raised. Such claims have also been corroborated by S S Mallikarjuna Rao the MD and CEO of Punjab National Bank. The developments in the last few days, in the case of Vodafone, have led to concern for the banking industry, referring to the AGR-related issues for the telecom players.

telecom player debt ladenHowever, banks that are already marred with a huge number of defaulters like PNB will not be highly affected by such a debacle. This is due to the fact that PNB’s stake in the company is not very high, thus, it is not going to impact PNB’s balance sheet.

The whole debacle comes after the apex court had asked the telecom players to settle their AGR-related dues. The AGR-related dues were worth Rs 93,520 crore to the government which needed to be settled over a period of 10 years.

Concerns for the same were risen by Birla in a letter to Cabinet Secretary Rajiv Gauba in the month of June. Birla, who holds a significant 27 percent stake in VIL had aired his concerns that investors were not willing to invest in the company. The hesitancy was due to the absence of clarity on AGR liability.

Additionally, ambiguity regarding an adequate moratorium on spectrum payments was also a potential deterrent. But most importantly floor pricing regime being above the cost of service was the main reason for hesitancy amongst the investors.

Compared to its peers,  the aggregate gross revenue liability of Bharti Airtel stands at Rs 43,980 crore. Similarly for the Tata group, its AGR liability stands at Rs 16,798 crore. BSNL has an AGR liability of Rs 5,835.85 crore and MTNL has Rs 4,352.09 crore.

Thus, given the huge telecom debacle, it might come as no surprise that SBI was the worst Nifty50 performer today and was down by 3.3 percent. Similarly, no one needs to wonder why shares of IDFC First Bank have tanked over 5 percent recently. Similarly, shares of YES Bank have plummeted by 2 percent.

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Sep 13
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What Does Vodafone Demise Mean for Our Banking Industry?

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What Does Vodafone Demise Mean?

The Vodafone demise: Call it a foreboding debacle or a case of poor strategy, but Vodafone has pushed its investors to the front of a heinous bargaining table. Negotiations will include discussions about their future course of action in relation to their exposure to the indebted telecom player. It should be noted that the telecommunications company is currently struggling to stay afloat.


Given the debt-ridden state of the telecom giant, quite rationally the investors and promoters have denied infusing cash into Vodafone’s Idea. Additionally, in much interesting turn of events, the apex Court has recently dismissed a plea for rectification of alleged miscalculation adjusted for gross revenue dues.

The revenue has to be paid by the company to the government which is quite an aversive situation for the telecom giant. The Supreme court has also actively condemned the telecom operator to bankruptcy and has recommended if it can raise fresh capital. It is to be noted, that given Vodafone’s bankruptcy status, it quite unlikely that it will be able to raise cash in the market.

As for its investors and promoters, they have denied infusing extra cash into the telecom giants to get it out of troubled waters. If Vodafone goes bankrupt, it will be the government’s worst nightmare because it owes the government a massive debt in the form of AGR dues and spectrum charges.

vodafone idea latest newsAs previously stated, the company’s prospects for raising funds appear bleak. But why are Vodafone’s investors blocking the company’s last hope of survival? Any new strategic investor will be putting billions of dollars into the government coffers, which is a necessary fact. This practically means that the funds will be transferred to the government rather than being strategically or successfully reinvested in the company to prepare it for the new 5G world.

In addition to the judicial proceedings, Kumar Mangalam Birla has stepped down as non-executive director and non-executive chairman of Vodafone Idea, which could be a deterrent to other investors. He has also offered the government to buy out the Aditya Birla group’s interest in the company, much to the chagrin of the telecom behemoth and its investors.


The Chairman of the Aditya Birla Group has effectively volunteered to hand over his stake in VIL to the government or any other company in order for Vodafone to continue to operate.

Vodafone Idea is highly unlikely to be able to service its gross debt in light of the aforementioned difficult circumstances. It’s worth noting that the telecom behemoth’s debt totals Rs 1.8 lakh crore. According to estimates, the telecom company owes various state-owned lenders at least Rs 28,700 crore. When official data is thoroughly examined, it can be seen that VIL had a gross revenue liability of Rs 58,254 crore. However, it should be noted that the telecom operator has paid a total of Rs 7,854.37 crore.

Banks in India, on the other hand, have begun classifying Vodafone as a stressed firm, which will come as no surprise to many. Vodafone Idea has been designated as stressed by IDFC, the first bank to do so. In addition, the bank has made a provision for 15% of the outstanding debt.

Given the Vodafone fiasco, it’s easy to understand how it might affect these banks’ financial performance in the near future. This is because banks will have to set aside a large amount of money to cover these risky lending accounts.
Various banking concerns have been raised as a result of another telecom major failing in the economy. S S Mallikarjuna Rao, the MD, and CEO of Punjab National Bank have backed up these assertions. The recent developments in the case of Vodafone have caused alarm in the banking industry, pointing to AGR-related difficulties for telecom companies.

vodafone demise meanThe whole shambles began after the Supreme Court ordered telecom companies to pay their AGR debts. The AGR-related dues to the government totaled Rs 93,520 crore, and they had to be paid over a ten-year period. Though Vodafone filed a review petition but considering the past events the chances of overturning the judgment are quite less.

Birla expressed his concerns about the situation in a letter to Cabinet Secretary Rajiv Gauba in June. Birla, who owns a 27% stake in VIL, has expressed his concern that investors are unwilling to invest in the company. The hesitation stemmed from a lack of clarity on AGR liability. Uncertainty over a sufficient embargo on spectrum payments was also a possible disincentive. The fact that the floor pricing regime was above the cost of service was the main source of investor skepticism.

If Vodafone goes out of business, the market will be dominated by only two major competitors, resulting in a duopoly, which is disastrous for the economy. Tariffs will rise because acquiring a Vodafone customer is also a cost-increasing activity, with the consumer bearing the ultimate burden.

The only way to save Vodafone is for the loans to be restructured, or for the AGR judgment to be overturned, which would give the beleaguered telecom sector a break, or for the government to offer some sort of assistance package. According to reports, the lender has proposed to the government that their debts be converted into equity, and if this happens, there’s a good probability it’ll be combined with BSNL, which is facing a slow death.

Top Insolvency Lawyers Mumbai

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Aug 25
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vodafone vs india inc

Vodafone vs India Inc: The Many Twists and Turns That Lie Ahead

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Vodafone vs India Inc: The Twists and Turns

The legal tussle between the telecom giant, Vodafone and India Inc. tied at deuce with Vodafone’s recent win in a tax liability case at The Hague. A unanimous decision of the Permanent Court of Arbitration at The Hague ruled in favour of Vodafone on the grounds that India’s retrospective demand of Rs. 22,100 Cr. as capital gains and withholding tax imposed on Vodafone violated the “fair and equitable treatment” guaranteed under the investment protection pact between India and the Netherlands i.e. the Netherlands-India Bilateral Investment Treaty (BIT).

While the tax dispute involving Rs. 12,000 crores in interest and Rs. 7,900 crores in penalties started with Vodafone’s acquisition of Indian mobile assets from Hutchison Whampoa in 2007 where-after the Indian government insisted on payment of taxes on the $11 billion acquisition, while Vodafone disputed against it before the Bombay High Court, which ruled in favour of the Department of Income Tax, and subsequently rejected by the Supreme Court, which held that Vodafone was not required to pay any taxes and demanded Income Tax Department to refund Rs. 833 crores in taxes to Vodafone Idea.

However, the convoluted tussle took another turn in 2012. To prevent abuse and plug the loophole of such indirect transfer of Indian assets, the government in 2012 amended the law thus empowering the Income Tax Department to retrospectively tax such deals, as a result of which the onus of paying the taxes fell back on Vodafone which the firm contested through international arbitration.

Thus, the recent setback at The Hague leaves India Inc. with one most obvious option i.e. challenging the award under Section 34 of the Arbitration and Conciliation Act, 1996 which provides for limited grounds to challenge an arbitral award.

A party to a dispute, if dissatisfied, has the right to challenge the award and in light of the persuasive effect, it is likely to have on other treaty arbitrations that concern retrospective tax measures, such challenge is justified. The government should consider damage mitigation strategies after losing against Vodafone in the backdrop of similar, but separate lawsuits such as the Cairn Energy tax dispute.

On the flip side, as the Permanent Court of Arbitration situated in The Hague had passed the award in favour of Vodafone, there lies no further authority for putting up an appeal. The government can only go back to the Permanent Court of Arbitration on some technical point, but that will not serve any purpose.

Furthermore, the Indian Arbitration Act obliges the government to implement a foreign tribunal award, Vodafone can ask for the same in case the award is challenged in Indian courts. However, in the present scenario, since all the property, both tangible and non-tangible of Vodafone, lies outside India it will be difficult for the government to successfully challenge it in Indian Courts due to jurisdictional issues.

Alternatively, India Inc. may choose to gulp in the award passed in favour of Vodafone and do nothing. However, still, waters on the legal front may have a ripple effect among investors. At the outset, the legal wrangle may appear to have no additional negative impact on investor sentiment as they recognise those challenge proceedings are part of the norm, appealing against an international arbitration award may disincentivize investors in the long term.

The reason is, that a change of legislation against the spirit of the Supreme Court judgment on the subject by resorting to retrospective legislation certainly creates an unpredictable and unstable business environment. From an international investor’s perspective, investment in countries leading to change in legislation when companies get entangled in legal tussles with governments for non-compliance with international orders jeopardizes investor interests and hurls them into an abyss of losses.

Besides discouraging investors, it creates interruptions in the ease of doing business in such countries and thus disincentivizes them to make any investments or indulge in any form of funding. Vodafone’s victory at The Hague may accord partial relief in the backdrop of its mounting AGR dues owed to India Inc. However, it is likely to have implications on other international arbitration cases over retrospective tax claims and the cancellation of contracts.

If other companies like Cairn Energy and a dozen others were to follow suit, the Government of India could end up paying to burn a hole in its treasury for damages if it loses. It is debatable whether the fault lies in the tax laws and the amendments made thereof, however, the after-effects will have to be borne by the entire economy regardless.

 

Tags: india bilateral investment treaty, vodafone acquisition, bilateral investment treaty of india, india bilateral investment treaty, vodafone acquisition, vodafone mergers and acquisitions, vodafone vs india inc, merger and acquisition of vodafone and idea

Jul 19
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Wave of Consolidation in the Indian Telecom Sector

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Consolidation in the Indian Telecom Sector

India is experiencing an unparalleled wave of telecom mergers, but value creation is far from certain. Currently, it is in the consolidation phase amid decreasing revenues, intense competition, and high capital expenditure requirements, and on the anvil where telcos will offer a whole gamut of services beyond voice and become digital services providers to witness a growth trajectory.

While the pandemic brought economies to a screeching halt, it created demand on account of people working from home, schools going online, home entertainment, and isolated consumers reaching out to friends and family. Further, telcos facilitated the digital transition of people and businesses at a pace much faster than it would have otherwise.

With increasing data usage among consumers, companies are shifting focus from traditional voice calls to wider digital consumer space such as content and mobile banking solutions. As a result, telcos invariably emerged as a lifeline in keeping the world connected and contributed significantly during the lockdown. This paradigm shift is likely to stir growth and bring about stabilization in the industry. 

Spooling back to 2016, the aggressive entry of Reliance Jio into the telecommunications market took the telecom sector in India by storm. In order to penetrate the market, Jio adopted disruptive market strategies. It attracted customers by offering unlimited LTE data and national voice, video, and messaging services, including national roaming at a very nominal price.

However, these strategies started a tariff war in the telecom market to acquire customers. Further, the launch of Jio proliferated the market for 4G services and smartphones. It is self-explanatory that the availability of such cheap data leads to an exponential rise in the consumption of online content, habituating people to digital services. In order to combat the competition triggered by Jio, other market players were forced to adjust their tariff strategies. 

Witnessing a wave of consolidation, smaller operators such as Aircel and Reliance Communications Ltd closed operations, whereas Tata Teleservices and Telenor were acquired by Bharti Airtel, and Vodafone India merged with Idea Cellular.

From a macro perspective, the year 2018 left three large players in the telecommunication industry namely: Reliance Jio, Bharti Airtel, and Vodafone Idea — accounting for over 90% of revenue and 80% of spectrum holding. Plummeting revenues, lower costs, and market competitiveness – were some of the factors that led to a massive consolidation phase. 

Recently, the credit rating agency India Ratings and Research stated that the telecom sector is headed for a second round of consolidation. The telecom industry is no more limited to traditional wireless services. Customers now prefer the operator that can provide more than one service such as broadband services, cable TV services (direct-to-home), enterprise solutions, e-payment wallets/ platforms, music applications, and over-the-top transmission platforms in a bundled form.

Consolidation 2.0 will kick in within the industry, which has the potential to bring change within the trade models of telecom companies, driving the advancement of officeholders from the suppliers of conventional voice-only administrations to total advanced arrangements for households.

One of the offshoots of the consolidation in the telecom market is alleviating competition. From 16 telecom operators, the market has reduced to a mere total of 4 players. The increased concentration in the telecom market will drive a potential loss of competition.

An example of the same is the Vodafone-Idea merger that aided Vodafone Idea beat Reliance Jio and Airtel to become India’s largest telecom company with 408 million active subscribers and revenue market share of 32.2 percent. Consequently, a decrease in competition intensity will also reduce the incentives to invest in the market. 

Another impact of the consolidation in the telecom sector is the concentration of pricing power. Jio started off by providing free and later ultra-cheap data services to its consumers. This forced other telecom operators to lower their tariff rates as well. Cheap data rates, as well as bundled digital services, have now increased the customers’ dependency on the data services.

However, with the consolidation of the operators, the price of the tariff plans will hike now. In 2019, for the first time in five years, Reliance Jio, Airtel, and Vodafone increased the price of their prepaid plans with the hope to improve the overall financial state of the telecom industry. With the proliferation of the consolidation, will come an increase in the average revenue per user (ARPU), causing a blow to the customer’s pockets.

Even though the consolidation has its own detriments, the tariff revision followed by it is a necessary aid that the Indian telecom sector desperately requires. Ever since the launch of Reliance Jio in 2015, Telecom operators have been struggling with a financial crunch due to the low prices.

However, how long the revision in tariffs will help the operators will depend on the customers’ reaction to the same. Content consumption has incremented the need for data services but customers’ data usage patterns after the hike in tariff prices are yet to be seen.

The telecom industry is experiencing a troublesome move from being voice-centric to data-centric and will stay beneath weight within the near term. In any case, within the long term, upon consolidation, we anticipate it to stabilize, with players undertaking innovative up-gradation with back from the government.

Considering the rising utilization of versatile web and a likely expansion of millions of unused web clients over the another five a long time, the industry is balanced for development and speaks to huge potential despite the prevailing pandemic situation.

The telecom industry is currently in turmoil, fraught with rising pricing pressure due to continuously declining ARPU and intense competition. Debt levels also remain high due to a reduction in organic cash flow and high CAPEX requirements, resulting in low stabilization.

However, going forward with the rising consumption of mobile internet and a likely addition of 500 million new internet users over the next five years, the industry is poised for growth and represents tremendous potential.

 

Tags: capital expenditure requirements, india telecom, indian telecom sector, telecommunication industry in india, future of telecom industry in india, telecom industry in india, telecommunication sector in india, growth of telecom industry in india, indian telecommunication

Jul 08
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Resilience & Re-Consolidation; Reality of The Telecom Sector in India

By Telecom No Comments

The Reality of The Telecom Sector in India: Re-Consolidation

The telecom companies emerged as a lifeline in keeping the world connected and contributed significantly during the lockdown and social distancing period. While the lockdown brought the economy to a halt, it created demand on account of people working from home, schools going online, home entertainment, and isolated consumers reaching out to friends and family.

Further, telecom facilitated the digital transition of people and businesses at a pace much faster than it would have otherwise. Spooling back to 2016, the aggressive entry of Reliance Jio into the telecommunications market took the telecom sector in India by storm. In order to penetrate the market, Jio adopted disruptive market strategies. It attracted customers by offering unlimited LTE data and national voice, video, and messaging services, including national roaming at a very nominal price.

However, these strategies started a tariff war in the telecom market to acquire customers. Further, the launch of Jio proliferated the market for 4G services and smartphones. It is self-explanatory that the availability of such cheap data leads to an exponential rise in the consumption of online content, habituating people to digital services. In order to combat the competition triggered by Jio, other market players were forced to adjust their tariff strategies.

In the aftermath of Jio’s entry, the telecom operators went into consolidation mode, acquiring spectrum, small players, infrastructure, etc. The most notable consolidation is the merger between the country’s two prominent telecom giants, Vodafone India Ltd. and Idea Cellular Ltd.

Another significant result of this wave of telecom consolidation is the acquisition of Tata group’s wireless phone business by Bharti Airtel Ltd. Thus, by the end of 2018, consolidation in the telecom sector left behind mainly three biggest players- Reliance Jio, Bharti Airtel, and Vodafone-Idea, other than the government-owned BSNL.

Recently, the credit rating agency India Ratings and Research stated that the telecom sector is headed for a second round of consolidation. The telecom industry is no more limited to traditional wireless services. Customers now prefer the operator that can provide more than one service such as broadband services, cable TV services (direct-to-home), enterprise solutions, e- payment wallets/ platforms, music applications, and over-the-top transmission platforms in a bundled form.

Consolidation 2.0 will kick in within the industry, which has the potential to bring change within the trade models of telecom companies, driving the advancement of officeholders from the suppliers of conventional voice-only administrations to total advanced arrangements for households. One of the offshoots of the consolidation in the telecom market is alleviating competition.

From 16 telecom operators, the market has reduced to a mere total of 4 players. The increased concentration in the telecom market will drive a potential loss of competition. An example of the same is the Vodafone-Idea merger that aided Vodafone Idea beat Reliance Jio and Airtel to become India’s largest telecom company with 408 million active subscribers and revenue market share of 32.2 percent. Consequently, a decrease in competition intensity will also reduce the incentives to invest in the market.

Another impact of the consolidation in the telecom sector is the concentration of pricing power. Jio started off by providing free and later ultra-cheap data services to its consumers. This forced other telecom operators to lower their tariff rates as well. Cheap data rates, as well as bundled digital services, have now increased the customers’ dependency on the data services.

However, with the consolidation of the operators, the price of the tariff plans will hike now. In 2019, for the first time in five years, Reliance Jio, Airtel, and Vodafone increased the price of their prepaid plans with the hope to improve the overall financial state of the telecom industry. With the proliferation of the consolidation, will come an increase in the average revenue per user (ARPU), causing a blow to the customer’s pockets.

Even though the consolidation has its own detriments, the tariff revision followed by it is a necessary aid that the Indian telecom sector desperately requires. Ever since the launch of Reliance Jio in 2015, Telecom operators have been struggling with a financial crunch due to the low prices.

However, how long the revision in tariffs will help the operators will depend on the customers’ reaction to the same. Content consumption has incremented the need for data services but customers’ data usage patterns after the hike in tariff prices are yet to be seen. The telecom industry is experiencing a troublesome move from being voice-centric to data-centric and will stay beneath weight within the near term.

In any case, within the long term, upon consolidation, we anticipate it to stabilize, with players undertaking innovative up-gradation with back from the government. Considering the rising utilization of versatile web and a likely expansion of millions of unused web clients over the another five a long time, the industry is balanced for development and speaks to huge potential despite the prevailing pandemic situation.

 

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