Survival of the fittest as India telcos battle over new oil
Founder, Director of Avaali Solutions Pvt Ltd, Ms. Srividya Kannan’s views on survival of the fittest as India Telcos battle over new oil, published in The National. The article was carried out in the online version.
“An effect that Reliance Jio has had is to hasten the consolidation in the market in order to compete with Jio,” says Mr Mathews. “Reliance Jio’s 4G network has been a differentiator but this is quickly being matched by competitors. Revenue growth is expected to be subdued but not materially altered as data usage by customers picks up. The major effect will be on profitability and margins which will continue to face downward pressure for at least the next four to six quarters.”
Tata announced earlier this year that it was looking for a buyer.
“It is expected that the top three or four will generate enough profits and market share to remain in business, while there will be increased pressure on the others to further consolidate or exit the market,” says Mr Mathews.
Meanwhile, the airwave auction will add to telcos’ already large piles of debt, says Mr Gupta. And it is not only Jio’s competitors that are suffering because of the rivalry. “How much and when will Reliance benefit from its telecom venture remains to be seen because Reliance is also incurring a huge cost on challenging the incumbents,” Mr Gupta says.
“Competition is indeed going to increase in the coming months. The consumers are going to benefit from the pricing war but it is yet to see how sustainable this model is.”
Telcos will be forced to go beyond simply offering the best prices. “With the consumer mindshare and loyalty switching at the drop of a hat, telecom operators must undividedly focus on what truly matters: delivering unparalleled customer experience,” says Mr Gupta. “The recent technology investments by Airtel and Vodafone on data analytics exemplify this. I believe, in the end, the winners in this game will be the ones who offer consistent and reliable experiences and not necessarily free services.”
Srividya Kannan, the founder and director of Avaali Solutions, a consulting and technology implementation services company based in Bangalore, says that Jio “is shaping the future of the marketplace” and is “forcing a shift towards a better network … and importantly acceleration in the movement towards 4G”.
She says that the telecom sector “remains the epicentre of growth and innovation for India”.
It is “the smaller and over leveraged telcos [that] will be most impacted”, Ms Kannan says.
“While in the short run, [the entry of Jio] may force existing providers to recalibrate their tariffs and put pressure on the earnings margin, in the mid to long run, this will definitely lead to a significant increase in volumes. There is also likely to be very aggressive bids in the upcoming spectrum auctions – a double whammy given that pressure on margins is also coming at a time of higher capital expenditure.”
Ultimately, there is a silver lining, Ms Kannan points out.
“The good news is that in a high-level context, all this is in complete alignment towards a truly digital India.”
Also, while Jio’s launch has been creating friction with other operators, its launch has led to something of a mending of ties between Mukesh Ambani and his younger brother, Anil. Mukesh was forced to hand over the telecom division, Reliance Communications, to Anil Ambani in 2005 as their late father Dhirubhai Ambani’s group was carved up between them amid a family feud.
Anil Ambani told shareholders on Tuesday that amid sharing of spectrum, towers and networks, there was a “virtual merger” between Reliance Communications and Jio. “Anil Ambani & Mukesh Ambani are working hand in hand to create the India that Shri Dhirubhai Ambani dreamt of”, Anil’s Reliance Group posted on Twitter.