Shares of telecom companies surged on Monday on hopes of consolidation in the sector. Speculation is rife about a possible merger between Vodafone and Idea Cellular to survive the stiff competition after the launch of Reliance Jio.
Idea Cellular jumped 8.3%, its maximum gain since 11 months. The stock gained for the seventh consecutive session and rose 26% in this period. Rivals Bharti Airtel jumped 4.6%, its biggest gain since 28 November, while Reliance Communications Ltd rose 5%.
The telecom industry in India is already reduced to a four players’ game -- Reliance Jio being the new one, and Bharti Airtel, Vodafone and Idea as the incumbents. Marginal players such as Reliance Communications, Aircel and Telenor are already looking at probable consolidation.
Hindustan Times reported earlier that Telenor is in advanced discussions with Idea. Aircel and Reliance Communications have already decided on a merger. However, a recent ruling from the Supreme Court against Aircel promoters might become a roadblock.
The Vodafone source also said, “the telecom industry is in high debt, and there is almost no space to add more debt.”
The combined debt of all telecom operators put together is already Rs 3,85,000 crore. The companies are also spending millions of dollars in 4G rollouts, forget the money that has to be pumped in, once a pricing war starts between the telcos.
Even as the last word on the pricing war in India’s telecom space is yet to be heard, JP Morgan in an analysis said that the 4G offering by the latest player Reliance Jio is gaining traction and will see its subscriber base double by the end of this financial year.
Mukesh Ambani is out to conquer his competitors. Reliance Jio, Ambani’s telecom venture is up against incumbent rivals such as Bharti Airtel, Vodafone and Idea Cellular.
Ambani is India’s richest man, and his bets are big -- be it petrochemicals, retail or hydrocarbons -- and telecom is not different. He wants to change the way India uses the internet, by offering high-speed internet services at ultra low cost.
For that, he has already invested Rs 1,71,000 crore (almost $25 billion) into the telecom venture to build India’s first fourth-generation (4G) only telecom infrastructure to provide high-speed internet. On Monday, he announced that Rel Jio will raise another Rs 30,000 crore through a right issue, which the company will use to lay additional optical fibre cable (OFC) and expand existing network.
The Indian telecom industry has already gone through two rounds of price wars -- the first one was when Reliance Communications in 2002 launched Monsoon Hungama and gave mobile connections with handsets at Rs 500. The second one was in 2009 when Tata Docomo started a mega price war with the one-paisa-per-second tariff.
(With inputs from Mint)