In 2016, Reliance Jio was considered as the most expensive start up with Rs. 1 Lakh Crore in investments. In 2020, Jio has already raised over Rs. 1.52 Lakh Crore from investors globally including from the likes of Google and Facebook. Jio has disrupted the Indian telecom industry!!
Jio has made in-roads in the Indian telecom industry including in wireless and broadband services. This has been made possible mostly because of Reliance’s deep pockets and marketing budgets and not by any superior or better technology. On the contrary, Airtel’s services and product offerings are much better and the company is expanding aggressively and perhaps more successfully in the broadband and DTH space.
In the Jio vs airtel fight, Jio had taken a lead by introducing free 4GB high-speed 4G data. This helped Jio attract large number of subscribers initially. In addition, Jio also offered free voice calls. All such freebies led to a price war between Jio and its competitor Bharti Airtel and Vodafone Idea (Vi). Consumers were the only winners as each of these three big players fought amongst each other to win market share, Jio being the frontrunner in terms of doling out freebies and burning cash.
Airtel has had a loyal and large share of subscribers traditionally. Jio has reported an addition of 300 million users, in the past three years. Vi on the other hand seems to be doing fairly badly having lost ~130 million subscribers, downgrading the company to the number three position. That said, Bharti Airtel has also lost ~45 million subscribers while Jio added ~180 million subscribers.
Reliance Jio now dominates India’s mobile market with 35.03% share against Airtel and Vi Idea’s 27.9% and 26.3% share, respectively.
Also Read – What happens next with Vodafone Idea?
Key Metrics to Look At:
Drop in Customer Base – In April-June quarter, Jio snatched the top position in terms of number of active subscribers from Vi.
|Subscriber Base (In millions)||June-18||June-19||June-20|
Reduced earnings and huge debt pose a huge threat to both the companies. Jio’s entry into the market dented the financial metrics for both Bharti Airtel and Vi. Airtel and Vi stock price has been falling continuously.
Comparative Financials – June 2020
|In Rs. Cr.||Reliance Jio||Bharti Airtel||Vi|
|Net Loss/Profit||Profit – 2,520||Loss – 15,933.10||Loss – 25,460.00|
Debt Position – Vi is clearly the most indebted company.
|In Rs. Cr.||Mar-15||Mar-16||Mar-17||Mar-18||Mar-19||Mar-20|
While both Airtel and Vi are struggling, Jio was able to raise a total of Rs. 1.52 trillion by selling nearly 33% stake to financial and strategic investors. This has helped Reliance achieve net debt free status. Reliance will use a part of the money to fuel further growth in Jio Platforms, with focus on data.
Jio Investment Deals
|Investors||Amount (In Rs. Cr.)||Stake|
|Vista Equity Partners||11,367.00||2.32%|
|Mubadala Investment Company||9,093.60||1.85%|
|Abu Dhabi Investment Authority||5,683.50||1.16%|
|Interstellar Platform Holdings Pte. Ltd. (L Catterton)||1,894.50||0.39%|
|The Public Investment Fund||11,367.00||2.32%|
|Intel Capital Investment||1,894.50||0.39%|
A price war has undermined India’s big telecoms companies. Although the government continues to place significant emphasis on initiatives such as Digital India, the telecom companies like Airtel and Vi are plagued with enormous challenges. Week balance sheet has led to low capex investment by these companies, which has led to further decrease in subscriber base (due to poor network service).
The recent AGR verdict will further put a dent on balance sheet positions of telecom companies. Bharti Airtel and Vi will now have to pay the entire AGR liability toward license and SUC charges of Rs 44,000 Cr. and Rs 58,000 Cr. instead of Rs 34,300 Cr. and Rs 44,200 Cr., respectively. Bharti Airtel has cash close to AGR balance dues, (recent fund raised by the company) but Vi will struggle.
On the contrary, with the influx of cash (from investors), Jio has cleared debts and accumulated funds for future developments.
Indian Telecom Industry – Moving Towards Duopoly
After Jio’s entry, telecom sector in India was disrupted and for some quarters, Jio had established its monopoly. Recently, Vi has expressed its concerns about repaying its debt and announced that if forced to pay the outstanding amount, it might not be able to operate and might exit the Indian market. The magnitude and the nature of Vi’s market share loss indicates that the market is moving steadily towards a duopoly.
Over the past few years, the telecom industry has faced huge changes. From more than 10-12 players, the market has consolidated to only 3 players. We believe that Bharti Airtel would emerge as a key beneficiary of further market consolidation in a two-player scenario.
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