Billionaire Birla may tap markets as India’s telecom wars worsen

Bloomberg

Billionaire Kumar Mangalam Birla, whose Idea Cellular Ltd. is poised to become India’s top carrier, sees only a handful of businesses surviving a price war roiling the world’s second largest telecom market.
The chairman of the Aditya Birla Group also won’t hazard a guess on when the industry shakeout will end in a country where calls already cost less than two cents a minute—and are sometimes offered free.
“The telecom sector is undergoing a very turbulent and difficult phase,” Birla said in an interview.
“Probably the fittest three
will survive.”
India’s mobile operators have seen revenue plummet and debt soar after last year’s launch of Reliance Jio Infocomm Ltd., a wireless carrier owned by Mukesh Ambani. That triggered a bruising price war for mobile services. Jio started offering free calls and many others in the industry followed.
Idea Cellular is set to become the biggest player by subscribers after it closes its merger with the local unit of Vodafone Group Plc, but it may still have to tap financial markets to fund its substantial capital requirements, according to Birla. Banks are growing more cautious in lending to the beleaguered industry as telecom profits fizzle out.
With players falling “like nine pins,” Birla predicts that “the tariffs should stabilise at some point.” It’s still hard to say when prices will stop falling, and Idea won’t rule out share sales or bond issues to raise funds, he added.
Birla, 50, now faces the task of reviving profitability at Idea Cellular, which has reported three consecutive quarters of losses. Telecom accounts for about 13 percent of the overall revenue of the Birla group, which also includes mining, cement and financial services. The Bloomberg Billionaires Index puts Birla’s net worth at $8.2 billion.
The Vodafone merger will help Idea save $2.1 billion a year on operating costs and capital investments, while enabling the combined entity to make better use of wireless spectrum.
Banks though have become wary of wireless operators and are charging more, if they lend to them at all. Combined, the carriers owed $71 billion at the end of March, according to rating company ICRA. “Banks have become very selective,” Birla said. “Loans for the telecom unit have become more expensive than for other group companies because it has become a far riskier business.”

Shifting Trends
India is the world’s second largest telecom market by subscribers after China. For now, the sector is dominated by Bharti Airtel Ltd., controlled by billionaire Sunil Bharti Mittal. Although that will change after Idea’s deal with Vodafone is completed.
A wave of other consolidation is reshaping the industry.
Bharti Airtel agreed to buy the struggling local unit of Telenor ASA in February, while Reliance Communications Ltd. said in 2015 that it would buy AFK
Sistema’s local unit.
Smaller players including Reliance Communications and Tata Teleservices Ltd. are being forced to attempt to restructure debt and sell assets. Loss-making Tata Teleservices is said to be preparing to shut a large part of its telecom business, according to a Business Standard report.
“No Indian bank is ready to fund the telecom operators. No foreign bank wants to do it,” Anil Ambani, chairman of Reliance Communications, told shareholders. “There’s no financing for growth. Period.”
Anil Ambani is younger brother to Mukesh, and the two brothers’ businesses are independent although they share spectrum, telecom towers and fiber.

‘Reliance Jio is making profit’
Bloomberg

Billionaire Mukesh Ambani, who upended India’s mobile-phone market with free data and voice services a year ago, said the business made profit before interest and taxes as the unit began charging for data even as it reported a net loss.
Reliance Jio Infocomm Ltd. had a $40 million profit before interest and taxes, the company said in a statement. It’s the first time Ambani, India’s richest man, has disclosed earnings for the business. The company reported a net loss of 2.71 billion rupees on revenue of 61.5 billion rupees. Despite being the newest entrant in what was already one of the world’s most crowded mobile-phone markets, Jio has accumulated more than 138.6 million subscribers and has triggered a shakeout in the industry by undercutting prices. That’s prompted existing carriers to slash their tariffs and pursue mergers to survive.
Industry leader Bharti Airtel Ltd. said this week it would buy Tata Group’s mobile-phone business, months after agreeing to acquire Telenor ASA’s local operations. Vodafone Group Plc and Idea Cellular Ltd. are in the process of merging their Indian operations to create the nation’s largest carrier.
Reliance Communications Ltd. had planned to merge with Aircel Ltd., but that deal fell apart in early October. Jio, which already ranks fourth locally in terms of mobile subscribers, is planning further market share gains. The company is offering a $23 mobile that offers 4G data plans that cost as low as 23 rupees for two days or 153 rupees monthly.