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Airtel is resilient against Rel Jio’s new $4.4 bn war chest to kill competition

In a battle of might Sunil Bharti Mittal is not ready to give up yet, even though Mukesh Ambani has flooded the market with free services. Airtel holds ground, and is willing to throw in all it has, to win.

business Updated: Jan 18, 2017 23:24 IST
Sunny Sen
Chairman of Bharti Enterprises Sunil Bharti Mittal gestures as he speaks during a panel 'Size matters: The Future of Big Business' at the 'World Economic Forum' in Davos, Switzerland.
Chairman of Bharti Enterprises Sunil Bharti Mittal gestures as he speaks during a panel 'Size matters: The Future of Big Business' at the 'World Economic Forum' in Davos, Switzerland.(AP)

At 59, Sunil Bharti Mittal is perhaps fighting the biggest battle in his lifetime. It is against Mukesh Ambani, India’s richest man who is committed to infuse another $4.4 billion (Rs 30,000 crore) into his telecom business. He has already spent $25 billion.

Mittal, chairman and managing director of Bharti Enterprises, which runs Airtel, is not ready to give up pole position in the $35 billion Indian telecom industry.

Ambani wants to reach 100 million subscribers by March 2017 -- it is already at 72 million, adding six lakh every day, the company clams. That would also make Jio the world’s fastest growing company by number of users, faster than Facebook, Google and Whatsapp in their first year.

But, Reliance Jio’s 100 million users would also be little less that Airtel’s 259 million Indian user base, and Mittal would want to keep his lead over Ambani, even it means taking a hit on revenue and profitability.

Ambani has started a price war in the Indian telecom business by offering free data services and free voice calls for life to its users, until March 31.

That is the biggest reason of worry for incumbent telecom operators, who are already under heavy debt due to roll out of 4G network and buying airwaves. The cumulative debt of the industry is Rs 3,85,000 crore.

The last time there was a price war, when Tata Teleservices started one-paisa-per-second tariff in June 2009, the combined market capitalisation of telecom fell by 37% to Rs 1,62,300 crore in six months.

Sunil Mittal’s resilence

In the past six months Airtel has slashed data prices by 66%, and so have some of the other operators. For its new users on 4G, the new battleground for operators, it is giving Rs 9,000 worth of data free for the first 12 months.

Airtel will spend in the tune of $3.2-3.5 billion in 2016-17 in 4G roll outs and services.

“While all the top three operators are gaining share, Bharti Airtel is pulling ahead of Vodafone and Idea Cellular, driven by its lead on data roll outs and spectrum edge,” writes Deepti Chaturvedi in her report for equity consultancy CLSA, November.

The report also mentioned, the top three incumbent players gained market share, which went up to 75%. “Reliance Comm lost the highest revenue market share at 1.3% to a mere 4.2%, driven by migration of its CDMA subscribers.”

In a January report CLSA named Airtel as its top pick, and wrote that Mittal’s company would gain from “spectrum lead and execution.”

Last week, Mittal said, “Free services will impact revenue and margins... However, of all the telecom operators, we are the least impacted.”

Meanwhile, Airtel has also moved the telecom tribunal, urging it to direct the telecom regulatory authority of India to put an end to Jio’s free services, a hearing of which is due on February 1.

Airtel has also rolled out its V-Fibre network, based on European standards, to offer faster internet speeds at home. It is also launching unlimited internet-based voice calls at Rs 148 for a month to counter Jio’s free voice calls offer.

Mukesh Ambani’s gambit

Ambani has already spent $25 billion in building Reliance Jio’s infrastructure, applications and offering the services for free to its users.

It has raised another $4.4 billion from right issue. The company is expected to use that money to dole out more freebies in order to gain market share.

So far, most of Reliance Jio’s users are using its service as a second SIM, which might be Ambani’s biggest worry, as it would lead to a low ARPU game. ARPU is the average revenue per user, where Airtel is the leader.

“Jio’s free service is gaining reasonable traction with 26% using it as primary SIM and 21% as secondary SIM. 55% of the surveyed users find Jio speeds higher than that of other telcos,” writes Sachin Salgaonkar , research analyst at DSP Merrill Lynch.

Salgaonkar added, ““Voice calling is still an issue (with Jio) with only 22% have no problems at all. 32% users indicated that they use Jio as it is faster and 28% as cheap. Interestingly, 67% said they will use Jio as secondary SIM/dongle and 18% will use as primary one when Jio’s free offer ends.”

Ambani has, however, indicated towards a bigger problem with other telecom operators. “Jio continues to face interconnection congestion issues with some of the large operators on account of inadequate provision of points of interconnection (POI) capacities even months after commencement of services by Jio. The POI capacity provided by these operators is still way below requirement and is falling short of the customer addition pace of Jio, resulting in quality of service issues for Indian customers,” he said in a statement, on Monday.

The telecom war between two of India’s most formidable businessmen -- Mittal and Ambani -- has just started to take control of multi-billion dollar telecom industry.