India’s telecom operators can expect to make little leeway in their struggle to increase profits after years of punishing competition. Regulators and the judiciary are sending crossed signals. An agreement by regulators to allow a tariff increase late last year should have meant rising revenues. But a government plan to delay payment of back taxes was rejected by India’s Supreme Court ruling in March. Then came the full brunt of coronavirus.
One operator, Vodafone Idea, is 44 per cent owned by Vodafone UK. As a result of price discounting, Vodafone Idea has suffered badly since the two announced a joint venture in March 2017. Local reports this week that the much larger UK operator will bail out its partner with equity are unfounded.
For one thing, both Vodafone and Idea agreed at the merger that any past liabilities (for tax, penalties, etc) would be capped at €1.1bn for the former. That much is provisioned on Vodafone’s balance sheet. It impaired its Indian assets last year. Even so, the latter could use some help. Its market value has shrunk more than 90 per cent since the merger. That means net liabilities account for almost all of its enterprise value.
The main culprit has been the entry of Mukesh Ambani’s Reliance Jio with its cut-price offers — initially for free — on both mobile data and broadband packages. When Jio launched at the end of 2015 Bharti Airtel, Vodafone India and Idea held the top market shares. Today, the order is Jio, Bharti Airtel then Vodafone Idea — together holding more than 92 per cent share in revenue terms.
Understandably, recent positive noises from an Indian government worried about the financial health of operators has encouraged some buy recommendations from brokerages. Consolidation in the sector has not hurt either. Those with a contrarian bent should consider Bharti Airtel, which has some income from its African subsidiary. The rest of India’s phone operator sector should be left on hold.
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