Reliance Jio impact could be ‘painful’ for banks, but good for industry – Ind-Ra

Credit rating agency India Ratings has warned that the ongoing consolidation in the telecom industry caused by the entry of Reliance Jio will be painful for lenders and banks, but was good for the industry as whole.

It said it had become difficult for smaller players to survive in the market after the entry of Reliance Jio.

In the latest example of consolidation post Jio’s entry, the mobile business of Tata Teleservices — which owes about 40,000 cr to banks and other lenders — was sold practically free of charge to Bharti Airtel.

Even after the deal, the debt on the books of Tata Teleservices remains with whatever is left of the company. It is widely expected that the lenders will have to take a ‘haircut’ and agree to write down part of their outstanding debt to the company going forward.

“Tata Teleservices – Bharti Airtel Limited deal was inevitable, as the wherewithal to survive was diminishing for smaller telcos ever since RJio entered the telecom landscape. The exit of smaller telcos is good for industry structure in the long-term but painful for the stakeholders including lenders,” India Ratings said.

Other examples of Jio-inspired consolidation include the sale of Telenor India to Bharti Airtel and the merger of Idea Cellular and Vodafone India.

India Ratings noted that Jio has put on a better performance than many expected.

“..the company has reported a positive EBITDA (profit from operations) of Rs 14.4 billion and an average revenue per user of Rs 156, which is way above the average industry ARPU of Rs 83 in 1Q FY18, and is comparable with ARPU of Bharti Airtel at INR154 for 1QFY18… During the same quarter, the average ARPU for top telcos declined by up to 20% across top circles.

“RJio has been able to maintain momentum in subscriber acquisition on a monthly basis, garnering 10.8% subscriber market share by August 2017,” it said.

4.2% of Jio’s 10.8% subscriber share came from top three incumbents, while the rest of the players contributed the remaining 6.6%.

On a positive note, it said, the new entrant is playing the role of expanding the data market by driving consumption, and other players will be able to benefit as well.

“RJio’s data consumption per user is 10GB, is well above the industry average. This indicates the structural shift in data consumption habits which are likely to pull the average industry up,” it said.

Going forward, there could be an overall loss of subscribers across the board as subscribers stop using multiple SIMs.

“Subscriber growth turned negative in July 2017 reflecting industry churn, high urban tele density and possibly the beginning of reversal of dual-sim phenomenon,” it said.