Reliance Jio may soon stop giving you freebies

India's big phone companies may be burning cash amid brutal competition for market share, but the fight for subscribers by offering rock-bottom prices triggered by the entry of Reliance Jio Infocomm "is in its final stages", S&P Global Ratings said.

The global rating agency expects the Mukesh Ambani-run 4G new entrant to "rationalise its competitive strategy at some point over the next 12-18 months and start focusing on achieving sustainable revenue and margins".

"Jio, through heavy discounting, has managed to grab 10% of the country's telco subscriber base in less than a year, but costly discounting practices cannot last forever," Ashutosh Sharma, S&P Global Ratings credit analyst, said. But the global ratings agency conceded that Jio's aggressive tactics have been "a strain on revenue, profitability and cash flows of all contestants in this game".

India's raging telecom battle, according to Sharma, has "all the ingredients of a 'Hunger Games' movie, the combination of rivalry, power plays and elimination of the weak, has investors, financiers, analysts and the government on the edge of their seats".

Jio's dramatic entry last September has been particularly disruptive, in that, voice, which accounted for 80% of the sector's revenues, was offered free for life by the youngest mobile carrier. Jio's data rates too continue to be priced below incumbent carriers.

Small wonder, Airtel, Vodafone India and Idea have been compelled to closely match Jio's free voice calls and low-priced data offers to hold on to customers and maintain market position even at the cost of a sustained fall in revenue and profits.

In fact, sustained market disruption by Jio, according to experts, has hastened the need for consolidation compelling players without scale to exit. Biggies Vodafone India and Idea are in the process of merging as are RCom, MTS and Aircel while Bharti Airtel has acquired Telenor's India business.

Going forward, S&P Global Ratings expects the telecom sector to consolidate with the top three telcos — the Idea-Vodafone combine, Bharti Airtel and Jio — eventually controlling 75-85% of industry revenue, but this, it said, could still be a year or two away.

The global rating agency also expects telco margins and cash positions "to be further challenged before they get better".

Analysts at S&P Global Ratings expect (telco) leverage levels to remain elevated and margins to be narrow, which, in turn, would result in industry revenues declining 5-10% in the current fiscal through March 2018. But they said revenue declines for the top three players — Idea-Vodafone, Bharti Airtel and Jio — would be in the lower end of the range while "smaller players like the Reliance Communications-Aircel (combine), and the telecom arms of the Tata Group, would see sharp declines".