Reliance Jio says incumbent telcos to be blamed for debt woes

Even as the incumbent telcos talk about decreasing profitability in business, the latest entrant on the block Reliance Jio feels that telecom continues to remain one of the highest profitable sectors with an Ebitda margin of 30 per cent and the 'so-called' financial stress has been caused by the old operators themselves as they did not invest in equity as well as in new technology but kept on taking more debt.

Jio, which presented its views while meeting the inter-ministerial group (IMG) today, is believed to have said though incumbent operators have made significant returns over the years, they have not invested in equity. Jio said the financial stress has been caused due to aggressive financing strategies and not investing in new technologies, even though the sector fundamentals remain robust.

Also Jio blamed the top three operators -- Airtel, Vodafone and Idea Cellular -- of cartelisation which led to the financial stress of smaller operators. Jio further added these three are now seeking relief by leveraging problems of smaller operators.

The incumbent or old telcos have blamed the free services offered by Jio to be the reason for the current woes and have sought government help to tide over the crisis. An IMG was formed to look into the telecom sector woes and the panel undertook its first meeting with industry today. Representatives from Jio, Reliance Communications, Airtel and Tata Teleservices presented their views in front of the panel.

During the panel's meeting, Jio said though there should be reduction in levies, the operators should also commit to make equity infusion and investment in new technologies as a priority.

The Mukesh Ambani-owned firm also feels that the deferred payment for spectrum payments has done more harm to the sector as it made the airwaves too expensive. Jio feels that operators paid an astronomical amount for spectrum but using the airwaves with legacy technologies which is not a prudent business decision.

As per the presentation by Jio, 70-80 per cent of total debt as deferred payment highlights that operators have not invested in new technology.

In the presentation, Jio said their (old telcos) excessive dependence on debt has led to "unsustainable balance sheets. Jio said since 2010, Airtel raised Rs 2,28,831 crore debt while infusing just Rs 6,978 crore as fresh equity in business whereas Idea raised Rs 32,986 crore debt as compared to Rs 3,846 crore infusion as fresh equity while Reliance Communication drew Rs 56,319 crore debt on fresh equity infusion of Rs 6,071 crore.

It also added there was reluctance on part of their promoters to dilute shareholding to raise funds for investment in new technologies while they invested in "unrelated businesses or overseas acquisitions by borrowing extensively." It went on to cite Airtel investing Rs 40,000 crore to acquire Zain Africa and that UK's Vodafone paid premium to acquire stake of Hutch and Essar.

"Incumbent operators that have tried to block the entry of the new operator and prevented launch of new technologies are now passing the blame and seeking relief," the presentation said.

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