Indian MNOs’ plight worsens as RCOM/Aircel merger collapses

The current consolidation of India’s mobile operators is considered essential to reverse spiralling prices – made worse by the entry of disruptive Reliance Jio – and to make MNOs sufficiently strong to invest in 5G.

However, this process has suffered a setback just as the government, and some operators, start aiming for an early move towards 5G. One of two giant mergers on the table, between Reliance Communications (RCOM) and Aircel, has collapsed (the other is between Vodafone and Idea Cellular).

RCOM is now looking at alternative, short term measures to reduce its massive debts of about INR450bn ($6.8bn). The Aircel deal was called off last week, with the company citing regulatory delays and opposition from some creditors. RCOM’s share price fell by almost 11% after the announcement.

Measures to improve the balance sheet may include spectrum sell-offs, though that would clearly be a far less desirable option than gaining new economies of scale, and customers, via an acquisition. Most MNOs lack sufficient spectrum capacity to launch differentiated 4G and data services, and so RCOM investors will hope it can monetize its assets by sharing and swapping, not outright sale which would weaken its competitive position further.

RCOM’s purchase of smaller, former CDMA operator SSTL is still proceeding and that will add spectrum in the 800-850 MHz band to the larger firm’s existing holdings in 800 MHz, 900 MHz, 1.8 GHz and 2.1 GHz. In total, RCOM has 200 MHz valued at over $2.9bn, and SSTL will bring a further 30 MHz.

“The addition of SSTL’s valuable spectrum holdings in the 800-850MHz band will strengthen RCom’s spectrum portfolio by 30MHz and extend the company’s spectrum validity period in eight important circles in the country till the year 2033,” said RCOM.

The operator also plans to sell real estate and tower assets to repay debts, as well as sharing or leasing tower space and fiber to competitors and enterprises. It already has an infrastructure sharing deal with Reliance Jio and others, but it is now reported to be in talks with asset management firm Brookfield about a possible sale of its towers.

RCOM has a fiber optic network spanning over 190,000 kilometers, as well as 43,000 towers and 62,000 other cell sites, and data center assets covering a total area of 1.1m square feet to support enterprise customers and its own operations.

About the failed acquisition, RCOM said in a statement: “Legal and regulatory uncertainties and various interventions by vested interests, have caused inordinate delays in receipt of relevant approvals for the proposed transaction. Unprecedented competitive intensity in the Indian telecom sector, together with fresh policy directives adversely impacting bank financing for this sector, have also seriously affected industry dynamics.”

Another operator, Tata Teleservices, is aiming to quit the challenging Indian market. A subsidiary of the giant Tata Group, the MNO is reportedly going to shut down after 21 years. Tata Group executives have been meeting with government officials to discuss the future of the spectrum assets involved, reported local newspaper the Economic Times.

According to the report, which cites unnamed sources, the operator will have 60 days to complete the shutdown process once that formally begins.

Tata Teleservices moved into mobile services in 2008 via a partnership with Japan’s NTT Docomo, but the latter exited the lossmaking venture in 2014. Talks to sell Tata to Bharti Airtel or Vodafone fell through.

All this uncertainty comes at a time when India is making noises about taking a prominent role in 5G, rather than being a follower as it was in 3G and 4G. Bharti Airtel has been enhancing its LTE network, and making it 5G-ready, with its $9bn Project Leap, which includes Massive MIMO upgrades and other architecture changes including SDN/NFV trials. ZTE has carried out “pre-5G” trials with Bharti Airtel, Vodafone and Reliance Jio.

Telecom minister Manoj Sinha recently said he was committed to a roadmap to ensure that India could launch 5G services by 2020, which would place it in the first wave of deployments worldwide. The government has committed INR5bn ($76.4m) to 5G R&D. But this needs to be seen in the context of a heavily 2G-focused nation, in which mobile
broadband penetration is just 16.8%, and almost half of the population are unconnected (49.5% at the end of 2016, according to the ITU).

And MNOs will be unable to invest in 5G networks unless their balance sheets and ARPUs improve. “The elephant in the room is that no industry can survive with mobile voice tariffs halving within a year and data tariffs falling so sharply,” said Himanshu Kapania, CEO of Idea Cellular, during a recent event organized by India’s DoT. “This is causing financial and mental stress in the sector which has already seen a 2% de-growth last year.”

“The arrival of new technologies is welcome but the government needs to ensure a level playing field for all players to create a robust industry,” he added.