Reliance Jio’s IUC Plan Shows How Cash Starved Telecom Industry Is: Former Airtel CEO
Disruption and price war in the telecom industry will continue till Reliance Jio attains a 50% market share, Sanjay Kapoor says.
Reliance Jio Infocomm Ltd.’s decision to charge users to recover the interconnection usage charges, while going back on its promise to keep voice calls free on its network, shows the telecom industry is facing a cash crunch, according to Sanjay Kapoor, former chief executive officer (India and South Asia) at Bharti Airtel Ltd.
“This change in stance signals to the market that no matter whether you are incumbent or challenger, there is a cash crunch in the industry,” Kapoor told BloombergQuint.
The industry isn’t generating enough Ebitda and cash flows to sustain itself, he added.
Reliance Jio will charge customers 6 paise per minute for voice calls made to other phone networks as it aims to recover the IUC charges. Customers, however, will be compensated with free data of similar value.
The Mukesh Ambani-controlled telecom firm said it “has been compelled” to do this after the telecom regulator deferred scrapping of IUC. India’s youngest telecom service provider has paid around Rs 13,500 crore as net IUC to other operators since its launch. But after charging the customers, it will be able to recover the gross IUC.
“As long as on-net discounting is concerned, it’s fine because there is no cash out. But in case of off-net discounting, where one has to pay cash to someone else, for that to be absorbed by any company seems to be a challenge,” Kapoor said. “Jio has come out and said it needs to recover this money from the customers.”
Reliance Jio stormed into the world’s biggest telecom industry in 2016 with free services and cheap data pricing, forcing rivals to either consolidate or exit the market. The company now aims to acquire 50 percent market share by revenue.
“I think disruption and price war in this industry will continue as a pressure point till Jio attains a 50 percent market share,” Kapoor said. “Why would they relent after putting in tens of billions of dollars into this industry and be happy with a third of the share? I don’t see that stacking up.”
Watch | Former Airtel CEO Sanjay Kapoor’s take on Reliance Jio’s IUC plans