UBS says Jio can’t replicate India in Europe

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After a newswire story indicated RIL is considering a bid for Deutsche Telecom’s Dutch unit, stockbroker UBS warned it may not be able to repeat the success of its India telecoms operations in Europe with a prospective proposal for T-Mobile Netherlands.

The Mukesh Ambani-led conglomerate’s telecom company, Reliance Jio Infocomm, has “benefited from relatively peculiar circumstances in the India market, which would not necessarily be replicable in Europe,” according to UBS in a study released on Tuesday.

“RIL has never expressed any ambition to expand into Europe and has always been more focused on local expansion,” according to the report, which makes it “unclear” if such a move would fit within its financial & strategic framework. According to UBS, RIL is a “diverse corporation with substantial holdings in several industries such as energy, chemicals, and retail.”

RIL is working with an advisor to examine a bid for T-Mobile Netherlands BV, according to a press article quoting unidentified sources, while Deutsche Telekom is allegedly asking around 5 billion euros ($5.9 billion) in any deal. “It’s extremely improbable that RIL will spend such large sums on a foreign M&A while India remains its primary target market,” a senior industry said

In terms of financials, each of the RIL subsidiaries is self-funding, according to UBS, and “it is not obvious if there is the potential for major M&A given the existence of minority investors.” Since its commercial launch in 2016, Jio has amassed a subscriber base of 441 million (37 percent market share) in India. Unlike its competition, Jio started with a no-cost offer and faster network speeds.

Since Jio joined the market five years ago and disrupted it with free voice calls and inexpensive data pricing, India’s telecom industry has been bogged down by over Rs 8 lakh crore of debt and has been in the midst of violent price wars. Older carriers were obliged to match rates to keep consumers, putting a strain on their revenue and profitability.

Smaller companies that couldn’t compete were compelled to combine, while Vodafone India and Idea Cellular were forced to merge. As a result of the fast consolidation, the industry has reduced to only three big private players: Vodafone Idea (Vi), TeliaSonera (TeliaSonera), and TeliaSonera (TeliaSonera). 

Jio – from as many as ten – among the older ones. With Vi’s fight for existence ongoing, the possibility of the sector being reduced to a duopoly is not ruled out. A successful RIL offer for T-Mobile Netherlands, according to UBS, would be detrimental to the European and Dutch telecommunications markets.

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