Exit of Smaller Telcos Good for Industry Structure, but Painful for Stakeholders: Ind-Ra

The exit of smaller telecom operators is good for the industry structure in the long-term but it will be painful for the stakeholders including lenders, a recent India Ratings and Research (Ind-Ra) said. It added that the ability of smaller telcos to survive is shrinking after the disruptive foray of Reliance Jio.

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The consolidation has accelerated in the last 12-15 months with Telenor India merging with Bharti Airtel Limited, while Idea Cellular Limited and Vodafone India merging with each other.

However, future of Reliance Communications Limited with Aircel Limited is uncertain due to the rejection of their merger due to regulatory/legal reasons. Both RCom and the Maxis Communications Berhad (promoters of Aircel) announced their merger in September 2016 with each holding 50% stake in the merged entity. The merger plan was recently called off Aircel merger citing delays due to regulatory and legal uncertainties.

RCom now plans to shut down a majority of its 2G business by November end, and is preparing a strategy to build a 4G-led wireless business.

“Tata Teleservices/Tata Teleservices (Maharashtra) and Bharti Airtel deal was inevitable, as the wherewithal to survive was diminishing for smaller telcos ever since RJio entered the telecom landscape,” the rating agency said.

Bharti Airtel, India’s top telco and Tata recently entered into an agreement to merge Consumer Mobile Businesses (CMB) of TTSL and TTML into the Sunil Mittal-led telco. As part of the agreement, Airtel will absorb Tata consumer mobile business operations across the country in nineteen circles — 17 under TTSL and 2 under TTML. These circles represent bulk of India’s population and customer base.