Blood on the streets in India's telecom war
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Airtel was the first company to announce its Q3 financial results during this results season, and when it declared the numbers on Tuesday, it was far from good news. The company posted declining operating profits and revenue, and a steep fall in net profits, which had halved year on year.
And the trail of red in the balance sheet leads to Jio. Speaking to mobile users in india, it’s easy to see why. One Airtel subscriber in Bangalore, speaking to me, told me he now had two smartphones – one an inexpensive Xiaomi for his Airtel connection, and the second a Lyf phone with a Jio connection he uses for data. After he got the Jio connection, he shifted to a cheaper Airtel plan since he can use data for free on Jio. “The call drop on the Jio network is very bad,’ he said, ‘so I use it only for data.’
This encapsulates the challenge that India’s telecom players are facing with Jio’s entry: it is hard to beat ‘free’. Since Jio launched, Airtel has cut its data tariffs by 66%. Airtel’s free cash flow has disappeared in its bid to cut tariffs and keep hold of its subscribers: it had over Rs.3,547 crore in cash flow in the September quarter, which is now down to Rs.1.5 crore, not much more than spare change for the company. Airtel is now reportedly in discussion to raise additional funds through a Rs. 10,000 crore issue of non-convertible debentures.
Idea Cellular – whose results are due soon – had seen an 88% drop in net profits for the September quarter. The company, smaller than Airtel with a larger, price sensitive rural base, is also likely to show results in the red. Both Airtel and Idea have approached the telecom tribunal TDSAT to try and put an end to Reliance Jio’s free services. Ambani has already hinted that Reliance, cash-rich as it is from its oil-refining margins, will attempt to extend Jio’s free services beyond March, even as his competitors pile on debt.
The ongoing telecom battle is an important test for India’s regulators. Should companies be allowed to offer products and services below cost for prolonged periods of time, to kill off the competition? This same issue had led to regulation that cracked down on e-commerce marketplaces and the steep discounts they offered to lure customers.
Reliance clearly wants the end-game in telecom to be one where it has reached the top using the ladder of ‘free plans’. ‘Free’ is something few customers can resist, and also makes subscribers more willing to bear call drops and low quality of service.
Reliance knows this, and will spend from its vast cash reserves to wear out its competitors, and for as long as it is allowed to do so.
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