Telecom debt woes because Airtel, Idea, Vodafone not investing in business: Reliance Jio

Mukesh Ambani-owned Reliance Jio claimed the incumbent operators “made significant returns” over the years but have not invested in equity.

Billionaire Mukesh Ambani-led Reliance Jio on Monday ascribed financial stress in the telecom sector to existing operators like Bharti Airtel and Idea running businesses on debt and investing heavily in unrelated sectors.

Reliance Industries Limited chairman Mukesh Ambani speaks during a press briefing of Reliance Jio in Mumbai. (PTI file photo)

Incumbent operators have blamed Jio‘s promotional free voice and data offering for seven months for the financial woes of the sector. But Jio said the “problem lies elsewhere”, as the Airtel, Vodafone and Idea milked the sector all these years by running the businesses on debt and now when consumer is benefiting, why should anyone complain.

In a detailed presentation to an inter-ministerial group constituted to look at the telecom sector woes, Jio said the operators complaining of financial stress haven’t invested in equity or even in their own networks and have over-leveraged balance sheets.

Jio claimed the incumbent operators “made significant returns” over the years but have not invested in equity.

Their excessive dependence on debt has led to “unsustainable balance sheets”, Jio said, citing Airtel drawing Rs 2,28,831 crore debt since 2010 while infusing just Rs 6,978 crore as fresh equity in business.

Jio said there was reluctance on part of their promoters to dilute shareholding to raise funds for investment in new technologies while they invested in “unrelated businesses or overseas acquisitions by borrowing extensively”.

It went on to cite Airtel investing Rs 40,000 crore to acquire Zain Africa and that UK’s Vodafone paid premium to acquire stake of Hutch and Essar.

For the current financial woes, it said, easy credit for buying spectrum has worsened matters.

Government provided option for deferred payment without any credit check, it said, adding that deferred payment makes up for about 70% of the gross debt of Airtel, Vodafone and Idea.

Jio said business of smaller operators was impacted “very badly by Airtel, Vodafone and Idea between 2014 and 2016.

“Interestingly, there have been strong signs of cartelisation in the behaviour of the big three operators as tariffs were aligned and designed to thwart entry of new operators,” it said.

“Both TRAI and CCI have found evidence of cartelisation in the behaviour of Airtel, Vodafone and Idea,” it added.

Jio squarely blamed industry body COAI for the “state of the sector” and alleged that the “current stress can be equally attributed to COAI’s anti-competitive actions over the years”.

It further said that the existing telecom operators are not investing in technology and instead passing the blame to the new operator for the sector’s problems.

“Incumbent operators that have tried to block the entry of the new operator and prevented launch of new technologies are now passing the blame and seeking relief,” it added.

Interestingly, Jio has sought repayment of deferred payment liability for spectrum at a time when the other operators are unified in demanding that the period of repayment should in fact be extended to 20 years, the life of the spectrum.