Earlier this week, Anil Ambani-owned Reliance Communications announced that its proposed merger with rival telecom operator Aircel had been called off. Tata's loss making telecom venture Tata Teleservices may also likely be on the verge of shutting down. This has raised concerns of impending job losses in the sector, which could run into thousands.
It had been clear long ago that smaller loss making players will find it hard to survive the onslaught of Reliance Jio, which drove down voice and data prices significantly, denting revenues and profits of the existing companies.
Recently, Telecom Regulatory Authority of India also announced a sharp cut in inter connect charges, which will further hurt the revenues of incumbents.
Due to these issues, when even bigger companies like Bharti Airtel, Vodafone and Idea Cellular have taken a hit on earnings, pressure will be more on smaller companies to sustain.
To sustain in the ongoing price war, companies will need to have deep pockets at least over the next 2-3 years, and many of the smaller companies are making huge losses, point out analysts.
In the year ending March 2017, Tata Teleservices reported a loss of Rs 4,617 crore. Reliance Communications posted a loss of Rs 1,283 crore and Idea Cellular also reported a loss of Rs 400 crore. Bharti Airtel's profits also declined 38 per cent in 2016-17 to Rs 4,241 crore.
In the recent past, Norway's Telenor exited India, selling its operations to Bharti Airtel and Sistema Shyam is merging with RCom. Vodafone and Idea Cellular are also in merger talks, a deal that is expected to be completed in 2018.
Tata Teleservices had earlier reportedly explored possibilities of merger with Airtel. But, reports now say it may shut down the telecom operations, and subscribers are already being told to migrate to other networks.
The company has not officially made any announcement in this regard, but says all options are being explored.
“Tata Teleservices continues to explore all options in respect of its business given the challenging business environment in the telecom industry. At this stage, Tata Teleservices has not made any firm decision on the way forward for its telecom business,” Tata Teleservices (Maharashtra) Ltd, the listed subsidiary of Tata Teleservices said.
RCom has said that with the merger with Aircel now off, it will now adopt a 4G focused mobile strategy, while it will look to monetise its existing spectrum in the 800/900/1800/2100 MHz bands, valued at around Rs 19,000 crore either via trading or sharing agreements. It is also looking to sell some of its prime real estate.
RCom offers 4G services through a spectrum sharing deal with Reliance Jio. Analysts say, it indicates that the company may want to go ahead with an asset light model.
RCom was yet to officially respond to questions sent to the company.
“Every other company other than Jio, Airtel and Idea-Vodafone combined, is under tremendous pressure, be it RCom or Aircel or the Tatas. With the merger (Rcom-Aircel) called off, the likelihood of these companies sustaining their operations or getting back into profit looks very remote now,” Gaurav Dixit, associate director at Care Ratings told THE WEEK.
Anil Ambani, chairman of Reliance Communications had himself warned in June that the telecom industry had cut 10,000 jobs last year, and a further 30,000-40,000 jobs may be reduced due to the stress in the sector.
Experts say, its not just the telecom companies that will cut jobs, but the consolidation in the sector, will have an impact on employment also in the ancillary companies.
“Sustenance of operations is becoming challenging and this will lead to job losses, not only for the telecom providers but also in companies who are supplying equipment to them...It will have a cascading effect on all the stakeholders in the telecom sector,” said Dixit.
He expects job losses in the sector to be “significant.”
