The intense price war in the Indian telecom sector, unleashed by new entrant Reliance Jio Infocomm Ltd – the telecom arm of Reliance Industries – has led to an increase in subscribers, but it has also drastically shrunk the profit margins of existing players, leading to market consolidation, job cuts and other austerity measures.
According to the Telecom Regulatory Authority of India (TRAI) the country’s telecom subscriber base grew by 21.02 million to surpass 1.12 billion at by the end of November 2016, with Reliance Jio adding over 16.2 million subscribers. Reliance Jio, owned by India’s richest man, Mukesh Ambani, commercially launched its services on September 5 last year, offering a slew of freebies.
This forced the established players to drastically slash prices to retain customers and the sector also witnessed a spate of mergers and acquisitions. As the industry’s debt soared to nearly Rs 4.6 trillion (US$ 70 billion), all players have had to resort to austerity measures.
The latest company to announce job cuts is Tata Teleservices, the telecom arm of the US$ 100 billion conglomerate Tata group. It has fired 500-600 employees, mainly in sales and other related functions, reports PTI.
Tata Teleservices has a presence in 19 telecom circles in the country and offers fixed line and wireless networks on platforms such as GSM, CDMA and 3G. According to TRAI data, Tata’s mobile subscriber base stood at 51.2 million as of February 28, 2017.
The disruption caused by Reliance Jio has also triggered a slew of mergers and acquisitions. The biggest merger took place between the country’s second biggest telecom company, Vodafone India, and the third largest player, Idea Cellular, owned by industrial conglomerate Aditya Birla Group. Reliance Communications, owned by Mukesh Ambani’s younger brother Anil Ambani, recently merged with Aircel, promoted by Maxis Communications Berhad. The country’s leading telecom services provider Bharti Airtel acquired Telenor India, a subsidiary of Norway-based Telenor ASA.
“We are very concerned about the financial health of the industry, which cannot sustain jobs if the sector does not grow in an orderly manner”
Nearly 3,400 job losses have been reported in the last six months by telecom companies in the past seven months, according to Moneycontrol. Aircel and Reliance Communications have each shed 800 employees after their merger. Industry sources estimate that job cuts due to the Vodafone-Idea merger could be over 7,000, as both companies have pan-India operations, according to Business Line.
Rajan Mathews, Director General of Cellular Operators Association of India told Moneycontrol, “We are very concerned about the financial health of the industry, which cannot sustain jobs if the sector does not grow in an orderly manner. With many companies exiting (Telenor, MTS, Videocon) the sector and country, we are looking at shedding 30% jobs in the near future.”
Analysts point out that after mergers lots of roles get duplicated, especially if both partners have a presence in the same telecom circle. Sinosh Panicker, Partner at executive search firm Hunt Partners India told Business Line, “The way telecom is structured, there is a huge army of people in every circle. When two companies come together, the revenues go up but you don’t need a proportionate increase in headcount.”
Apart from job cuts telecom companies are looking to reduce losses in markets where they are on a weak footing. Bharti Airtel has reportedly identified six non-profitable African markets for consolidation to reduce losses and deal with financial stress due to the price war in India, reports Economic Times.
The company isn’t looking to exit Africa, but is exploring stake reduction or merger opportunities in Rwanda, Niger, Chad, Congo Brazzaville, Kenya and Tanzania. The company entered Africa in 2010 and its net loss there has widened to US$ 93 million in the December quarter from $74 million a year ago, on revenue of $919 million, the daily added.