Indian telecoms market faces massive shakeout

Subject

Outlook for India's telecoms sector.

Significance

The entry in September of Reliance Jio, the telecoms arm of the Mukesh Ambani-led Reliance conglomerate, has shaken the mobile telephony market. Many of the leading incumbent providers (eg, Airtel, Vodafone, IDEA Cellular and Reliance Comm controlled by estranged younger brother Anil Ambani) experienced an immediate decline in their share values, as investors expected profit margins to be squeezed by the new competition.

Impacts

• Foreign investors entering the sector face the risk of an uncertain regulatory framework.
• Under-reporting of gross revenue by telecoms providers will continue to cut government revenue.
• The market in data services will expand slowly, expanding the scope for other businesses such as mobile banking.