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India mobile: Here we Jio again

Group’s fundraising is more bad news for Vodafone India

Remember when it was just good to talk? BT Group ran a long advertising campaign in the UK using that very tagline. But its users at least paid for their chin-wagging. In India, talk is not just cheap — it is free. Jio, part of Reliance Industries, launched its 4G network last September with the promise of free calls. Since then, it has added more than 70m subscribers faster than one could say namaste. This is bad for investors in its rivals, and reflects badly on regulators.

Reliance Industries created Jio to diversify away from oil and petrochemicals, which were 93 per cent of operating profits last year. If this is what portfolio risk reduction looks like, Reliance’s shareholders would probably like a little less of it. Reliance has already spent $25bn on its network, and this week said it would raise about $4bn to invest in its mobile business. Meanwhile key rivals — Bharti, Vodafone and Idea — have pushed out cheaper tariffs to compete.

Even for big multinational groups like Vodafone, the largest foreign contestant, this has to hurt. Not only has Jio added lots of customers, but Bharti’s market share has increased by about a tenth in three years to September 2016. Vodafone has already taken two writedowns on its Indian business (a tenth of group profits), most recently in November. While Jio will need to start charging for voice calls eventually, the longer this discounting persists the more Indians will get used to cheap tariffs — as happened in European markets.

The regulator should intervene. Jio’s actions look predatory. All of Jio’s rivals are miffed at India’s telecom regulator for allowing Jio to discount beyond the typical 90 day maximum, which ended last month. Bharti has pushed for a hearing on this issue — not the first — in front of an appeals tribunal onFebruary 1.

Presumably, shareholders at Reliance Industries have had plenty of airtime with management about its India telecom strategy. Vodafone’s investors, too, will have concerns. No matter what action the regulator takes, the profitability of this industry will suffer for some time. Expect more mergers as smaller competitors struggle to keep up. 

Financial Times – Lex

Harsh Vardhan

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