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When Mukesh Ambali’s Jio entered the telecom market last year with free voice calls for life and free data for a limited period, it was clear that a shake-up was imminent in the market. At one point, India’s telecom market had close to a dozen players but competitive intensity had already whittled this number down to three large ones – Bharti Airtel, Vodafone India and Idea Cellular – and less than half a dozen fringe players. So when Jio trooped in with a promise of unlimited freebies and a known appetite to absorb losses, it was apparent that the telecom market pecking order had to change to survive.
India is the world’s second-biggest mobile phone market by subscribers, behind China, but high competition in the crowded market has traditionally kept profits under pressure for all players. With competition rising due to Jio entry, consolidation is the only way forward. In this scenario, whispers of a possible merger between Vodafone and Idea have been doing the rounds for months – they were finally confirmed by Vodafone only last week.
If these discussions do fructify into a merger, the new entity will be the undisputed leader of India’s telecom market in terms of subscribers. And the biggest loser in this scenario would obviously be the long standing telecom czar, Bharti Airtel. Jio, whose arrival triggered an industry-wide consolidation, will also find the going tough in future since customer acquisition will become tougher.
So Why Are Vodafone And Idea Cellular Exploring A Merger At All?
The country’s number one telco by subscribers is Bharti Airtel, with Vodafone a close second and Idea coming in at number three. A merger between Bharti Airtel and either of the remaining two would have caused trouble as India’s merger and acquisition rules allow a merger, only if the percentage of adjusted gross revenue market share of the merged entity does not exceed 50 per cent in any particular telecom circle. The guidelines also specify that the combined entity should have less than 50 per cent of spectrum in each band individually in addition to having less than 25 per cent of the spectrum allocated to all operators in all bands in all circles.
So in the event that Bharti Airtel and Vodafone, say, explored a merger, these caps would have been violated in a large number of circles. The only other option was for the number two and three to explore synergies – which is what is happening right now.
How Does This Merger Benefit Vodafone And Idea?
Vodafone Plc has had to write down close to $5.5 billion in India, has been talking of a listing on Indian bourses with little success and has never been profitable in the world’s second largest telecom market. If a merger were to happen, it gets to not only perhaps reduce its losses but also gets to list on the bourses since Idea is already listed, without having to undergo the initial public offer (IPO) process. For Idea too, a merger makes sense. Analysts say it has been weighed down by debt of over Rs 40,000 crore and a merger would enable a re-rating, possible increase in market cap.
Why Has Jio’s Arrival Spooked The Market So Fast?
Jio came with its freebies, including lifetime free voice calls and cheap data plans, but the heat has been on for all three players even before its arrival. Now, thanks to the freebies, margin pressures have only increased.
This article shows how market leader Bharti Airtel suffered in the third quarter due to increased competitive intensity. Third quarter net profit slumped 55 per cent from a year earlier as its voice and data businesses felt the full impact of Jio’s free services. Revenue fell 3 per cent as data and voice rates fell and more subscribers left the operator. Bharti Airtel managing director and chief executive Gopal Vittal said: “The quarter has seen turbulence due to the continued predatory pricing by a new operator…This has led to an unprecedented year-on-year revenue decline for the industry, pressure on margins and a serious impact on the financial health of the sector.”
Rivals including Bharti Airtel were forced to slash effective data rates and offer free voice calling on some plans across price segments. Telcos had started cutting tariffs even before Jio’s launch, hurting key operational metrics such as average revenue per user (ARPU) and average revenue per minute (ARPM). Even after cutting data rates sharply, the company’s data customer base fell 12.4 per cent quarter on quarter, pulling down data usage by 3.5 per cent.
What Kind Of Muscle Will The Merged Entity Have?
As Jio continues to extend its freebies, consolidation could well be a necessity as both Vodafone and Idea will need to protect revenues, profitability and valuations. Fitch Ratings said in a note to clients last week that a planned merger between Vodafone and Idea should help them withstand intense price competition in the market. The ratings agency said it expects the merger could improve the combined EBITDA margin by 250-350 basis points due to cost savings – mainly on network and marketing expenses. The combined entity will also have a more balanced subscriber mix, as Vodafone is strong in urban areas whereas Idea focuses more on the rural mass market. “We estimate the merger would create an entity with 390 million subscribers, a leading revenue market share of around 40 per cent, revenue of $11-12 billion and an EBITDA margin of about 28 per cent to 30 per cent,” the Fitch analysts said.
Will This Merger Be Easy To Achieve?
As with any mega corporate deal, possible merger between Vodafone’s Indian operations and Idea would face challenges. As explained earlier, M&A norms may cause some trouble. Brokerage firm CLSA has pointed out earlier that a merger of these two companies would breach the revenue market share ceiling in five out of 22 telecom circles. But a telecom market expert says the knotty problem of revenue market share cap breach may get resolved once Jio – which is offering free services till now – begins charging and the revenue market share dynamics shift. All in all, a merger will work as long as both partners work out a solution to the M&A caps. Of course, the usual merger issues such as valuation, which partner gets to control how much in the new entity and which gets to run the new entity will also need to be resolved as the talks progress.
Is The Telecom Industry Game For Further Consolidation?
If the Vodafone-Idea merger happens, then the merged entity and Bharti will together control over 70 per cent of India’s telecom market share by revenue. This obviously spells doom for remaining small players. Industry estimates peg post-merger market share for Tata Teleservices at 6.5 per cent, BSNL and MTNL combine at 5 per cent, Aircel at 5.7 per cent and Sistema at 4 per cent. Reliance Communications (RComm) is estimated to be close to Sistema’s share at 4.2 per cent.
It then becomes incumbent upon these small players to either unleash another round of consolidation or wind up. Tata Teleservices is embroiled in a legal tangle with its Japanese equity partner DoCoMo and this alone may prevent any near term consolidation.
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Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.
Globally, around 80% of wastewater flows back into the ecosystem without being treated or reused, according to the United Nations.
This can pose a significant environmental and health threat.
In the absence of cost-effective, sustainable, disruptive water management solutions, about 70% of sewage is discharged untreated into India’s water bodies.
A staggering 21% of diseases are caused by contaminated water in India, according to the World Bank, and one in five children die before their fifth birthday because of poor sanitation and hygiene conditions, according to Startup India.
As we confront these public health challenges emerging out of environmental concerns, expanding the scope of public health/environmental engineering science becomes pivotal.
For India to achieve its sustainable development goals of clean water and sanitation and to address the growing demands for water consumption and preservation of both surface water bodies and groundwater resources, it is essential to find and implement innovative ways of treating wastewater.
It is in this context why the specialised cadre of public health engineers, also known as sanitation engineers or environmental engineers, is best suited to provide the growing urban and rural water supply and to manage solid waste and wastewater.
Traditionally, engineering and public health have been understood as different fields.
Currently in India, civil engineering incorporates a course or two on environmental engineering for students to learn about wastewater management as a part of their pre-service and in-service training.
Most often, civil engineers do not have adequate skills to address public health problems. And public health professionals do not have adequate engineering skills.
India aims to supply 55 litres of water per person per day by 2024 under its Jal Jeevan Mission to install functional household tap connections.
The goal of reaching every rural household with functional tap water can be achieved in a sustainable and resilient manner only if the cadre of public health engineers is expanded and strengthened.
In India, public health engineering is executed by the Public Works Department or by health officials.
This differs from international trends. To manage a wastewater treatment plant in Europe, for example, a candidate must specialise in wastewater engineering.
Furthermore, public health engineering should be developed as an interdisciplinary field. Engineers can significantly contribute to public health in defining what is possible, identifying limitations, and shaping workable solutions with a problem-solving approach.
Similarly, public health professionals can contribute to engineering through well-researched understanding of health issues, measured risks and how course correction can be initiated.
Once both meet, a public health engineer can identify a health risk, work on developing concrete solutions such as new health and safety practices or specialised equipment, in order to correct the safety concern..
There is no doubt that the majority of diseases are water-related, transmitted through consumption of contaminated water, vectors breeding in stagnated water, or lack of adequate quantity of good quality water for proper personal hygiene.
Diseases cannot be contained unless we provide good quality and adequate quantity of water. Most of the world’s diseases can be prevented by considering this.
Training our young minds towards creating sustainable water management systems would be the first step.
Currently, institutions like the Indian Institute of Technology, Madras (IIT-M) are considering initiating public health engineering as a separate discipline.
To leverage this opportunity even further, India needs to scale up in the same direction.