Jio Effect: Idea, Reliance Incur Losses

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New Delhi: Aditya Birla group firm Idea Cellular and Anil Ambani-led Reliance Communications on Sunday posted their first-ever consolidated net loss mainly due to huge market disruption created by newcomer Reliance Jio.

Idea and RComm today found themselves among the telecom players adversely impacted by the entry of Mukesh Ambani-led RJio. Idea posted a consolidated net loss of Rs 383 crore and RComm reported Rs 531-crore loss in the October-December quarter of this fiscal.
Idea had registered a net profit of Rs 659.35 crore and RCom posted a profit of Rs 303 crore in the same period of the financial year 2015-16.

“Indian mobile industry witnessed an unprecedented disruption in the December quarter of 2016, primarily due to free voice and mobile data promotions by the new entrant in the sector. Consequently, revenue KPIs and financial parameters for all mobile operators have sharply declined, and for the first time in its history, the flourishing Indian wireless sector is trending towards an annual revenue decline of 3 to 5 percent in FY 2017 compared to FY 2016,” Idea said in a statement.

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About a fortnight back, Bharti Airtel had seen its consolidated net profit drop by more than half at Rs 503.7 crore in the October-December 2016 as compared to Rs 1,108.1 crore in the corresponding quarter of 2015-16.

A week later, Vodafone too posted a decline of 4.7 percent in its India revenue.
Idea said the telecom sector can expect to recover revenues only once the new operator (Reliance Jio) starts charging for its pan-India mobile services.

“The company suffered a net loss of Rs 531 crore during the quarter primarily on account of…unprecedented competitive intensity. This was the first full quarter after the company’s complete shutdown of its profitable CDMA operations,” RCom said in a statement.
Mukesh Ambani started his second innings in the telecom sector with the commercial launch of Jio service on September 5.

In his previous innings, he launched Monsoon Hungama tariff plan by providing mobile phones for cash down payment of Rs 500 for Reliance Infocomm (now RComm), and phone calls at 40 paise a minute compared to then the minimum rate of around Rs 2-3 per minute.
RCom said there was an increase in amortisation and interest expense aggregating Rs 278 crore on account of capitalisation of 850 MHz spectrum liberalisation fee, which too adversely impacted its financials.

Both telecom operators registered a decline in their consolidated total income as well despite consumers using their network more due to a reduction in mobile services rates.
Idea reported income decline of 3.6 per cent at Rs 8,706.36 crore from Rs 9,032.43 crore during the period under review.

The consolidated revenue of RComm fell 11 per cent to Rs 4,822 crore in the reported quarter, from Rs 5,420 crore in the corresponding period of the previous fiscal.
Idea, which is in talks with rival Vodafone for a merger, said it was “forced to reduce” its voice rates on sequential quarterly basis by 10.6 per cent to 29.6 paise per minute from 33.1 paise in the July-September 2016 and drop in mobile data rates by 15.2 per cent to 15.9 paise per megabyte compared to 18.7 paise.

“Despite an unprecedented outgoing voice rate fall, the lure of free offerings resulted in lower than normal volume elasticity with the quarterly sequential voice minutes growing only by 7.3 percent to 210 billion minutes (compared to 195.5 billion minutes in second quarter of 2016-17), that too led by double-digit growth in incoming call volume,” Idea said.

Also, the higher blended voice realisation rate fall was also an outcome of the “tsunami of minutes” terminating on Idea’s network from the new operator, resulting in an overall higher ratio of subsidised incoming minutes recovered at below cost IUC settlement rates.
Idea, for the first time, witnessed a decline of 5.5 million mobile data customers on the sequential quarter basis with overall mobile data subscriber (2G,3G and 4G) base receding to 48.6 million from 54.1 million in the second quarter of 2016-17.

Its net debt stood at Rs 49,140 crore at the end of December 2016, including a larger proportion of this debt from DoT under ‘Deferred payment obligation’ for spectrum acquired in last four spectrum auctions.

Idea’s capital expenditure was Rs 2,000 crore, excluding forex and interest capitalisation, in the reported quarter, partially funded by cash profit of Rs 1,230 crore.
RComm too reported a decline of 10.5 percent in revenue realisation from voice calls despite minutes of usage going up on its network by 4.3 percent to 102.1 billion minutes compared with the previous quarter.

RComm reported a decline of 0.6 percent average revenue per user to Rs 154 and drop of 10 per cent in data traffic on its network as against the previous quarter.