Airtel’s cash-free and debt-free acquisition of the consumer mobile business of Tata Teleservices along with Tata Teleservices Maharashtra, is the latest in a frenzied outburst of consolidation activity being witnessed by the Indian telecom sector. The stage is set for a three-pronged clash of the titans, namely Reliance Jio, Bharti Airtel and the Vodafone-Idea merged identity, with state-owned BSNL (Bharat Sanchar Nigam Limited) is a distant albeit significant fourth. At stake is the world’s second largest telecommunications market (by subscriber base) cum the world’s third-largest internet user base.

This is Airtel’s sixth acquisition activity since 2015, post-Tikona Digital Networks & Telenor Communications in 2017, Aircel Dishnet Wireless (spectrum) & Videocon Telecommunications (spectrum) in 2016, and Augere Wireless Broadband India in 2015.

The most notable consolidation can be touted to be that of India’s 2nd largest telecom service provider which is Vodafone India Limited, with Idea Cellular Limited being 3rd largest in the country. Other noteworthy activities include the merger of Reliance Communications with Sistema Shyam Teleservices and the acquisition of Reliance Communication’s wireless assets by Reliance Jio.

The previous rounds of consolidation in the telecom sector in India can be traced back to 2001-04, which oversaw the exit of various regional players such as Koshika Telecom, Escotel etc. along with the advent of pan-India operators.

Rising debt levels in the sector, translate into high finance costs, reduction in debt repayment abilities and worsening interest coverage ratios are the trigger that has prompted this flurry of consolidation in the Indian telecom sector. The top 7 Indian telecom companies (Bharti Airtel, Idea Cellular, Vodafone India, Reliance Jio, Reliance Communications, Tata Teleservices and Tata Teleservices Maharashtra) have witnessed a 19% rise in their total debt burden in financial year 2016-17; from $ 46.5 bn in FY16 to $ 55.3 bn in FY17. The sector’s cumulative debt has mounted to almost $ 76.9 bn, with revenues to the tune of just $ 27.6 bn.

In the end, this consolidation drive is expected to yield some positives. It will spur infrastructure-based investment, along with higher pricing discipline in the telecom sector. Consumers are expected to get benefited by getting improved services from service providers that have a sound footing and strong capabilities to undertake investment in service quality and new network expansion. This will particularly be beneficial to address the fast-increasing usage of data by Indian consumers. The industry shall see stable and long-term realisations, along with considerable improvements in capital efficiency. The Department of Telecommunications (DoT) and the Telecom Regulatory Authority of India (TRAI) are keeping a watchful eye on the impact of the consolidations, and are keen to ensure that these aforementioned benefits are realised.

Almost prophetically, in an interview to ‘Business Line’ in 2016, Mr. Sunil Bharti Mittal, Chairman of Airtel had said that he envisions that only 4 operators shall remain in business over the course of the succeeding 24 months. It seems now, that this statement is going to be realized much sooner than had been anticipated.

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