Bharti Airtel chairman Sunil Mittal has reportedly told the telecom minister Manoj Sinha that current cut-throat tariffs and ongoing competition will force more telecom operators to exit the sector. According to a report in the Economic Times, Mittal during a meeting with Sinha said that only one or two non-state phone companies would stay in business "if current levels of competition persisted with tariffs pegged well below cost."
Mittal, who was accompanied by Airtel chief executive, reportedly said that "an operator with a strong balance sheet is shaking the industry."
Notably, Reliance Industries Limited's telecom venture Reliance Jio, which commercially started operations in September last year with free voice and data services, disrupted the telecom sector, impacting the profitability of incumbent telecom operators. The entry has also triggered a consolidation drive among telecom operators.
Jio's entry has impacted the financials of the debt-laden telecom industry, prompted the government’s meeting with telcos and banks.
Sinha after his meeting with leading telecom operators, including Bharti Airtel, Idea Cellular, Reliance Jio, Reliance Communications and Telenor, said that the government would take corrective steps for ensuring orderly growth in the sector in terms of services to the common man including in rural areas.
The minister’s meeting follows last week’s meetings between the inter-ministerial group panel (IMG) and telecom operators. IMG, which has representation from telecom, finance and revenue departments, also met with banks and state-run telcos BSNL and MTNL.
Sinha told telcos that the inter-ministerial group (IMG) looking into the financial issues of the debt-laden telecom sector would submit its report to the government shortly. The IMG will recommend policy reforms and strategic interventions. He added that each telecom operator had given a detailed roadmap of suggestions for the betterment of the sector.
B Sriram, MD of State Bank of India, who also attended the meeting warned the government that "business viability would be a casualty and no bank or financial institution would lend to telecom companies if the current levels of decline, owing to intensified competition triggered by a new entrant, were left unchecked." He also referred to what happened in 1996, when policy reforms had to be put in place to revive the sector, according to the report.
Sriram urged the government to intervene and decide on the level of competition.
Commenting on Mittal's views, a Reliance Jio spokesperson said, “To say that Reliance has a strong balance sheet and that’s why they can give low tariffs, is a complete misnomer. Jio has invested Rs 2 lakh crore and it has a definite business plan.”
Jio told the government that the industry’s revenue will double to Rs 4 lakh crore from Rs 2 lakh crore, pointing out that EBITDA margins are close to 30%, the highest across various industries.