Reliance freebies have cost other telecom companies dearly

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Published on 11 April 2017 12:14 PM GMT

Reliance freebies have cost other telecom companies dearly
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Reliance freebies have cost other telecom companies dearly
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New Delhi: They never had it so bad in last seven years. All their calculations have been upset. And there is just one company which is responsible for all this, Reliance Jio.

Largely due to company's lower tariffs and promotional offers, nine telecom operators have revenue fall of nearly Rs 19 lakh crores in 2016-17. And it is not all. There will be further decline during the current financial year.

The next year is hoped to be better but not better than 2015-16 when the revenues totalled over Rs 18 lakh crores.

According to a report by the broking firm, Corporate Finance and Capital Markets and Asset Management, besides lower and free offers, price war waged by telecom companies have contributed to revenue losses.

In quarter ending December alone, the revenues of nine operators fell by 1.1 per cent.The operating margin for the industry was little over 28 per cent. Profitability was the lowest in this quarter in previous six quarters.

The matter was raised at many quarters including the Telecom Regulatory Authority of India (TRAI) , the body set up by the government to address such issues. The agency found logic behind their complaints and tried to partly meet their grievance by asking Jio to withdraw freebies offered after March last.

The company has complied with the order and denied free offers to new customers but the existing customer will continue to derive benefit. Reliance Jio, launched in September last has got more than 100 million subscribers.

But, as is clear from the broking firm's report, heavy damage has been already done. The Average Revenue Per User or ARPU in December quarter of Bharti Airtel fell by 10.4 per cent to Rs 172 and Idea by 10.8 percent to Rs 157.

In the long-term, however, there will be some gain. Return on capital is likely to increase by around 300 basis points in next two years.

The regulatory authority which is seized of the matter is of the view that the lower tariffs and promotion offers are lowering the government collection and hitting finances of the telecom industry.

The companies may face difficulties in meeting contractual commitments, making payments for spectrum and repayment of loans.

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