SINGAPORE (Nov 25): The price war between the three main Indian telcos appears to have eased after Bharti Airtel, Vodafone Idea and Reliance Jio announced mobile-data price hikes starting December.
This news would have come as a relief to Singapore Telecommunications, which has been weighed down by its 35% stake in Bharti Airtel. From being a major earnings driver among its overseas associates, Bharti Airtel became a drag on Singtel instead, as it waged a price war ignited by Reliance Jio.
Vodafone Idea and Bharti Airtel announced their hikes on Nov 18, followed by Reliance Jio a day later. On Nov 21, Singtel shares closed at $3.26, up four cents from Nov 18. Year to date, the stock has gained 13.1%.
When Reliance Jio entered the market in 2016, it priced its plans at rock bottom prices to grab market share from incumbents such as Bharti Airtel. Indian mobile users were happy to subscribe to the world’s cheapest data plans but shareholders of the operators were dismayed by the decimated margins.
Reliance Jio’s entry has forced consolidation as well. From over 15 operators in India when it started the war three years ago, there are just three main ones left, Bharti Airtel being one of them.
News of the price war truce comes just a month after the Indian Supreme Court slapped the operators with massive retrospective licensing fees in a ruling over a long-drawn-out dispute between the industry and its regulator.
Vodafone has to pay US$4 billion ($5.4 billion) and Bharti Airtel US$3 billion. Jio was hit with a smaller US$1.8 million payment as it entered the market just three years ago.
The ruling caught the telcos by surprise, as Singtel group CEO Chua Sock Koong noted in its 2QFY2020 results briefing on Nov 14. The dispute had gone through the Indian legal system over 14 years, and each time, the rulings had been in favour of the operators.
As a result of the ruling, Singtel was compelled to book a massive charge of $1.93 billion for its Bharti Airtel business. The company reported its first-ever quarterly loss of $668 million for the three months ended Sept 30, 2019. To assuage investors, Singtel maintains that it will remain profitable for the full-year FY2020; it is also keeping its full-year dividend guidance of 17.5 cents.
With the tariff hikes, investors are now hoping for an eventual surprise on the upside. The operators can all do with a revenue boost. In addition to alleviating the companies’ considerable financial stress, the hike will also put them in a better position to pay the hefty fees.
In their respective statements, the operators allude to the fact that the Indian authorities are no longer antagonistic towards them. The Telecom Regulatory Authority of India is likely to initiate discussions for bringing rationality in pricing, Bharti Airtel says. Vodafone, on its part, says the acute financial stress the industry suffers has been acknowledged by all stakeholders, and a high-level government panel is looking into providing appropriate relief.
Just in March this year, Bharti Airtel had to raise US$3.5 billion via a rights issue to reduce its debt. Singtel subscribed to US$525 million of the rights shares while Singapore government sovereign wealth fund GIC subscribed for US$700 million.
As a result of this additional capital, Singtel is optimistic that its associate is in better financial health than its rivals, said Arthur Lang, Singtel CEO, International, at an Aug 8 briefing.
“If you look at the balance sheet of Airtel, with the rights issue and the IPO of their African business, I would say among the three, Airtel has the strongest balance sheet. We are hoping for the best, but we are prepared for the next few quarters as well,” Lang said.
