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Business deals

India's Vodafone-Idea merger may be too late, as Jio accelerates growth

Jio posts another record user-base growth to top 215 million, cornering rivals in profitability

Since the Vodafone-Idea merger plans were announced in 2017, Reliance Jio's market share has doubled.   © Reuters

MUMBAI -- The megamerger of wireless carriers Vodafone India and Idea Cellular has received regulatory clearance after a year and a half, but the wait has cost them time during which billionaire Mukesh Ambani's disruptive Reliance Jio Infocomm has lapped up new subscribers.

Vodafone India and Idea Cellular, India’s second- and third-largest telecom companies by market share, will together displace market leader Bharti Airtel after one remaining regulatory nod from the National Company Law Tribunal.

As of May, Bharti Airtel commanded 30.46% of the market while the combined share of Vodafone and Idea totaled around 38.61%. Reliance Jio Infocomm comes in fourth at 18.17%, but the blistering pace of its growth has rattled the telecom sector. Jio recorded a net addition of 29 million users during the quarter ended June, maintaining the acceleration of quarterly net addition, with its total user base reaching 215.3 million.

Since March 2017, when the Vodafone-Idea merger was first announced, Reliance Jio’s market share doubled from 9%. Meanwhile, India's telecom landscape has undergone a major shift toward data from voice. The country had about 983.94 million wireless phone subscribers as of May, but still has room for penetration, particularly in data.

The brutal price war triggered by Reliance Jio's 2016 entry into the market put some players out of business, and bigger ones that survived are still grappling with plunging profits.

Bharti Airtel, which has maintained its market share lead, reported a 74% year-on-year slide in consolidated net profit to 973 million rupees ($14 million) for the April-June quarter. Its Indian operations posted a net loss of 9.4 billion rupees. Vodafone India saw revenue slump more than 31% during the period. Idea Cellular has yet to announce its quarterly earnings.

Reliance Jio, meanwhile, posted a net profit of 6.12 billion rupees on revenue of 81.09 billion rupees. It turned in a net profit of 7.23 billion rupees for its first year of commercial operations during the financial year that ended in March 2017.

"We doubled our customer base and most user metrics in the last 12 months," Ambani, the chairman of Jio's parent, industrial conglomerate Reliance Industries, said on Friday, pointing to "the continued strength in financial results of Jio despite competitive intensity." 

Reliance Jio's average revenue per user is also higher than peers, at 135 rupees per month. Bharti Airtel ended the quarter through June at 105 rupees per month. Jio is now trying to win consumers in the postpaid segment, in which customers are billed monthly. Head of strategy Anshuman Thakur says this will take more time to add than subscribers that use prepaid, where users pay as they go. Thakur hopes that the postpaid segment will further strengthen Jio's ARPU.

Even in the postpaid segment, Reliance Jio's voice and data charges are the lowest compared with peers.

Telecom analyst Deven Choksey foresees the pecking order changing dramatically in the next two years.

"The Idea-Vodafone combination is a pure survival strategy, nothing to talk about as far as growth is concerned," said Choksey, managing director of KRChoksey. "If they want to grow, there is no choice but to keep investing money. All said and done, in 2020 Reliance is likely to have a market share of 50% to 65% as against Bharti Airtel [which will be No. 2], and Idea-Vodafone at No. 3."

Angel Broking analyst Mayuresh Joshi reckons that while the Idea-Vodafone deal will produce synergies, Reliance Jio has already entered its next phase of growth and is essentially in a mature state in terms of investment.

Reliance is expanding fast in digital content offered on the Jio platform and is also planning to make a big splash in e-commerce. Owner Ambani, India's richest person, looks to create a hybrid model that brings together Reliance Retail's 350 million customers, the 215 million users of Jio's mobile services and the 50 million targeted customers of new fixed-line broadband service Jio GigaFiber on one platform. The aim of this move is to drive people toward using data.

Consolidation in India’s telecom industry, which was accelerated by Reliance Jio's entry, has left the market with essentially three big players. Some much smaller providers, such as government-owned Mahanagar Telephone Nigam and Bharat Sanchar Nigam, are just surviving.

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