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Hit hard by entry of Jio, bad run for telcos to continue into Q4: experts

Hit hard by the entry of Mukesh Ambani’s Reliance Jio, major telecom operators in India - Bharti Airtel, Idea Cellular and Reliance Communications – are likely to see their balance sheets under pressure in the fourth quarter of the current fiscal as

India TV Business Desk, New Delhi [ Published on: February 20, 2017 13:02 IST ]
Incumbent telcos have suffered huge losses with Reliance
Incumbent telcos have suffered huge losses with Reliance Jio's entryPhoto:PTI

Hit hard by the entry of Mukesh Ambani’s Reliance Jio, major telecom operators in India - Bharti Airtel, Idea Cellular and Reliance Communications – are likely to see their balance sheets under pressure in the fourth quarter of the current fiscal as well. The incumbent telcos came under major pressure in the third quarter (October-December) of the current fiscal and the trend is likely to continue, say experts.

"Margin pressure on telcos will continue as long the free data offer from Reliance Jio continues. As and when Reliance Jio decides to withdraw its offer and start charging for its data services, then it will be a different matter," Arpita Pal Agrawal, partner and leader, Telecom Industry Practice, PricewaterhouseCoopers India, told IANS.

"Customers will then compare telco offerings on parameters such as price points, throughput speed, tariff bundles, service experience to decide about their preferred operator option," she added.

As announced earlier, Reliance Jio plans to offer free data to its customers till March 2017.

Bharti Airtel's net profit for the third quarter of 2016-17 dropped by 55 percent while Idea Cellular reported a loss of Rs. 478.9 crores for the same quarter. Reliance Communications too posted a net loss of Rs. 531 crores in the quarter. Vodafone India, the other big telecom operator is not listed on any Indian bourse.

"The quarter has seen turbulence due to the continued predatory pricing by a new operator. The present termination costs at 14 paise which are well below cost has resulted in a tsunami of minutes terminating into our network. This has led to an unprecedented year-on-year revenue decline for the industry, pressure on margins and a serious impact on the financial health of the sector," Gopal Vittal, Airtel's MD and CEO, India & South Asia, had said in a statement earlier.

Idea Cellular too gave a similar reason for the sharp drop in earnings. "The Indian mobile industry witnessed an unprecedented disruption in the quarter of October to December 2016, primarily due to free voice and mobile data promotions by the new entrant in the sector," the company statement said.

Reliance Communications attributed the loss to three factors. "The industry witnessed unprecedented competitive intensity. This was the first full quarter after company's complete shutdown of its profitable CDMA operations. And there was an increase in amortisation and interest expense aggregating Rs. 278 crore on account of capitalisation of 850MHz spectrum liberalisation fee," it said in a statement.

Reliance Communications is owned by industrialist Anil Ambani and Reliance Jio's owner is his elder brother Mukesh Ambani.

Mahesh Uppal, director, Com First, a telecom consultancy firm, also said there is no doubt that the revenue drop in the third quarter was a direct consequence of Reliance Jio's aggressive free data offers.

"Incumbent companies, like Airtel and Idea, are being forced to match the prices to remain competitive. The cut-throat pricing is likely to continue since Reliance Jio would want to use it to acquire a decent market share," Uppal told IANS.

"India is a very price sensitive market; any such offering tends to be disruptive. Incumbent operators need to implement strategies to retain their high-value customers," Rishi Tejpal, Principal Research Analyst for Telecom Business Strategy at Gartner, told IANS.

"Operators need to implement data-oriented pricing strategies. Jio's free voice service with free national roaming is a compelling offering and incumbents need to match their offerings to remain competitive," he added.

(With PTI inputs)

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