Jio Entry Means Either Tatas Or Telenor May Need To Exit Telecoms— And Fast

The one thing that both Mukesh Ambani and hismain rival in telecoms, market leader Sunil Mittal, agree on is that the number of players will come down due to the need for consolidation.

In an interview today (8 September) to The Economic Times, Mukesh Ambani of Reliance said that the Indian market could sustain four to five players: “I see sustainability for at least 4-5 operators in this market of 1.2 billion.”

A few months ago, Mittal of Bharti Airtel— who has a quarter of the market— said he saw a “massive erosion of tariffs” due to the entry of Reliance Jio, and that only four incumbents will ultimately survive. He said in a June-end interview: “I think in two years’ time from now, we will have four operators and around that time we will see reasonable capital employed.” In other words, to get more investments into this capital-intensive business, you need exits.

Assuming the government-owned BSNL-MTNL combine will be allowed to bleed rather than die, it seems likely that the four survival certainties will be Mittal’s Airtel, Vodafone, Reliance Jio and Idea, unless something dramatically goes wrong with one of them.

The industry currently has eight players in the ring beyond Jio; it means five of them have to exit to bring the total down to four. Aircel and MTS (Sistema) have already indicated a plan to merge with Reliance Communications run by Anil Ambani; that leaves seven in the ring: Airtel, Vodafone, Idea, Reliance Jio, Reliance Communications, Telenor, and Tata Teleservices.

The players with the lowest market shares are Telenor and Tata with around five to six percent each. DoCoMo has already given up on Indian telecom and is now fighting a bitter battle with the Tatas on the exit price.

Logically, the Tatas and Telenor ought to be the two players who could be willing to exit first, assuming there is a good price to be had for their customers. That would leave five players and the government’s white elephants in the ring.

In the long run, the debt-heavy Reliance Communications should also be considered a future exit candidate, leaving only four private sector giants and BSNL to slug it out among themselves.

It is unlikely that Mukesh Ambani will pay big money to buy anybody out since he has invested Rs 1,50,000 crore in Jio. This makes Bharti and Vodafone the most likely buyers for any early exits, unless the exit happens only through share swaps.

Share swaps are likely to be the easiest way to exit an industry where incumbents will need to make even more investments to keep market shares and margins.

The only deterrents to early exits are corporate ego (which may keep the Tatas in the fray), or the possibility of getting no cash for it (and only shares).