Jio blames telecom debt woes on lack of investment

Much of the financial stress in the telecom sector can be ascribed to heavy reliance on debt and lack of focused investment, Reliance Jio said on Monday countering arguments by incumbent operators that Jio's extended promotional offer that is running into the seventh month is causing financial stress in the industry.

While telecom majors Bharti Airtel and Idea Cellular have blamed billionaire Mukesh Ambani-led Reliance Jio's freebees for the financial stress in the telecom sector, Jio said operators like Bharti Airtel and Idea are running businesses on debt and investing heavily in unrelated sectors.

The "problem lies elsewhere" as Airtel, Vodafone and Idea milked the sector all these years by running the businesses on debt and now when consumer is benefiting why should anyone complain.

In a detailed presentation to an inter-ministerial group constituted to look at the telecom sector woes, Jio said the operators complaining of financial stress haven't invested in equity or even in their own networks and have over-leveraged balance sheets.

While the operators have "made significant returns" over the years, they have not invested in equity. Instead, they continued to leverage debt, leading to "unsustainable balance sheets," Jio said, citing Airtel drawing Rs2,28,831 crore debt since 2010 while infusing just Rs6,978 crore as fresh equity in business.

Idea raised Rs32,986 crore debt in the 7-year period as compared to Rs3,846 crore infusion as fresh equity while Reliance Communication drew Rs56,319 crore debt on fresh equity and infused Rs6,071 crore, Jio claimed.

Instead of diluting shareholding and investing in new technologies that would enhance customer satisfaction, promoters invested in "unrelated businesses or overseas acquisitions by borrowing extensively."

Jio also cited Airtel investing Rs40,000 crore to acquire Zain Africa and UK's Vodafone paying a premium to acquire stake of Hutch and Essar.

Added to this, the huge borrowings for spectrum acquisitions have worsened matters, it said, adding that deferred payment for spectrum makes up for about 70 per cent of the gross debt of Airtel, Vodafone and Idea.

On the other hand, Jio said, business of smaller operators was impacted "very badly by Airtel, Vodafone and Idea between 2014 and 2016.

"Interestingly, there have been strong signs of cartelisation in the behaviour of the big three operators as tariffs were aligned and designed to thwart entry of new operators," it said.

"Both Trai and CCI have found evidence of cartelisation in the behaviour of Airtel, Vodafone and Idea," it added.

Jio squarely blamed industry body COAI for the "state of the sector" and alleged that the "current stress can be equally attributed to COAI's anti-competitive actions over the years".

"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," it added.