Telecom wars to continue, consolidation seen

‘The era of paying for voice calls is ending,” RIL Chairman Mukesh Ambani had said while announcing the introduction of Reliance Jio’s services in September. While there was no dearth of action in the telecom sector during the year, which saw the biggest spectrum auction, the banning of Facebook’s Free Basics and the merger of Reliance Communication and Aircel, Mr. Ambani’s long-awaited entry into the segment turned out to be the most significant.

The announcement sent the existing operators in a tizzy, triggering a full-fledged war between the incumbents and the new entrant. It also unleashed a fresh tariff war in the fiercely competitive sector. Telcos, including Bharti Airtel, Vodafone, Idea Cellular and BSNL, were forced to bring out similar offers to combat freebies offered by Jio, which were denting their revenues.

“Reliance Jio demonstrated how a deep-pocketed player can impact the market across the country, even though it is a late entrant. However, it is yet to demonstrate significant market share or force a large movement of customers to Jio,” Mahesh Uppal, Director at consultancy firm Com First told The Hindu .

Tussle over connection

The fight to grab a share of the booming telecom market, however, turned ugly over the issue of interconnect points. Reliance Jio had alleged that its subscribers were unable to make calls to other networks as other operators were not providing adequate interconnection points. On the other hand, existing telcos said that Reliance Jio’s “under preparedness” and “insufficient” testing efforts were to be blamed for network connectivity issues.

Telecom regulator TRAI, which the Cellular Operators’ Association of India had alleged was favouring Reliance Jio, and the Department of Telecom had to step in to broker peace between Jio and the existing operators.

The regulator, in fact, proposed a heavy penalty of Rs. 3,050 crore on the top three telcos, Bharti Airtel, Vodafone and Idea for violating their licence agreement and for denial of interconnection to the new player.

Analysts expected the price war to continue in 2017, bringing data costs down by at least 15 per cent.

“… (expect) at least 15 to 20 per cent decline in data tariffs, which could aid increase in data traffic by 50-60 per cent along with... availability of cheaper 4G-compatible phones. The industry will add at least 5-6 million smartphones each month, with the cheapest 4G phone costing only $45-60. However, strong traffic growth may not translate into revenue growth due to lower data tariffs,” according to a report by Fitch Ratings titled ‘2017 Outlook: India Telecommunications Services’.

Mr. Uppal added, “Tariff war will continue at least till April. Jio is an ambitious player and has limited options other than price to compete on. To keep people on their networks, we could see another round of tariff war in the sector.”

The year 2016 also saw the Supreme Court strike down TRAI regulation making it mandatory for telcos to compensate subscribers for call drops; Manoj Sinha taking over as the new telecom minister from Ravi Shankar Prasad; and, the merger of Reliance Communications and Aircel, which created the country's fourth-largest phone company in terms of customers and revenue. The year also saw the country’s biggest-ever spectrum auction, in which mobile airwaves worth Rs. 5.6 lakh crore were put up for sale, ending in a virtual failure with the government garnering revenues for only Rs. 65,789 crore. “The auction of spectrum and entry of Reliance Jio were the two most important events in the telecommunications sector. There were some interesting lessons in my view. In the spectrum auction, for the first time we saw fairly rational bidding. The operators were unwilling to pay for spectrum that was not readily available for use and overly priced (700 Mhz). The auctions have succeeded in removing the long-felt shortage of spectrum, which will lead to better quality services for customers. This will also help the government better design auctions in the future,” Mr. Uppal said.

‘Competition to intensify’

According to the report by Fitch Ratings, competition in the sector is to intensify further in 2017. In a report, Fitch said, “Pricing power could be eroded as incumbents retaliate against Reliance Jio’s cheaper data tariff and free voice and text.

“The planned merger between Reliance Communications and Aircel India could raise competition as they are likely to offer cheaper data services, given access to the efficient 800MHz spectrum assets.”

The agency also pointed out that industry may see more consolidation in 2017 as smaller telcos such as Tata Teleservices and Telenor India could exit or enter into merger deals to strengthen their competitive position, as they lack financial flexibility and 3G/4G spectrum assets.

Sanchit Vir Gogia, Founder & CEO of the research and advisory firm Greyhound Knowledge Group said operators would focus more on the enterprise side to push revenues.

“Revenue is a challenge, particularly in the B2C space; we will see telcos focusing on the enterprise segment (to) move up the value chain. In the enterprise space, too, a lot of focus will be on cybersecurity. The focus will also be on Internet of Things (IoT), ” he said.