Top three telecom companies’ debt is at ₹3.9 lakh crore — that’s half of India’s fiscal deficit

• Jio’s predatory data tariffs are still 25 to 30% lower than that of Airtel and Vodafone Idea.
• Airtel and Vodafone’s joint market share is expected to drop 25% to 27% each.
• The total debt of the top three telecom players — Reliance Jio, Bharti Airtel and Vodafone Idea — is as high as ₹3.9 lakh crore.

The telecom war that Mukesh Ambani’s Reliance Jio started will rage on for another two years, according to a report by India Ratings. The stress of investments and the lack of revenues due to deep discounting is hurting the entire industry, including Jio.

The total debt of the top three telecom players — Reliance Jio, Bharti Airtel and Vodafone Idea — is a massive ₹3.9 lakh crore, according to the report. That’s almost twice the amount the Reserve Bank of India gave the Indian government, which is ₹1.76 lakh crore this week.

The debt run up by the three war ravaged players is also almost half of the country’s total fiscal deficit which is pegged at around ₹7 lakh crore for 2019-20. Fiscal deficit is the amount of money the government is falling short of, to carry on its planned expenditure.

RJio’s market share will go up 40% to 45%

It doesn’t look like the debt is going away anytime soon. Jio’s predatory data tariffs are still 25 to 30% lower than that of Airtel and Vodafone Idea. India Ratings expects RJio’s market share to increase 40% to 45% over the next two years. At the end of the last financial year, it stood at around 30%.

“Airtel and Vodafone’s joint market share is expected to drop 25% to 27% each,” the report predicted.

Jio’s already declared that it’s targeting 50% market share in total telecom revenues, without mentioning a timeline. At his annual general meeting, Ambani promised Reliance Industries’ shareholders of Jio’s growth.

The company already has around 340 million customers but is aiming for more. “The potential for growth is immense, and half a billion customers is now well within our reach,” Ambani said.


No free cash flow available till 2021-22

As a result of high debt and continuous losses, the telecom players will remain structurally weak for the next two years, says the report. This means they will have no or low free cash in hand.

“These companies will continue to rely on refinancing or capital infusion. However, near-term liquidity is supported by large cash levels available post capital infusions (Vodafone Idea, Airtel) and continued financial flexibility due to strong parentage (Jio),” the report said.

From here on, there are a few things that can change the fortunes of the flailing telecom sector starting with Jio’s pricing strategy. Any change and possible increase in tariffs and subsequent response by other two players, will pave the way for recovery in the telecom sector.

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