Vanita Kohli-Khandekar: The return of the telecom giants

AT&T's acquisition of Time Warner forces us to look at the Indian market for telecom and media

Earlier this week the $146.8-billion American telecom giant AT&T announced that it will acquire the $28.11-billion Time Warner. The deal will cost a total of $108.7 billion, including the value of Time Warner’s equity ($85.4 billion) and its net debt. It will combine AT&T’s 130 million mobile phone customers and 25 million pay TV subscribers, with content from HBO, Cartoon Network, CNN and Warner Brothers’ Harry Potter series among others. Does this mean that competing shows and films distributed on AT&T’s mobile and pay TV network get a lower priority? Or that the next season of HBO’s Game of Thrones will be first released on the AT&T Network before being offered to Comcast or others? Those are questions for the US antitrust authorities, which have to clear the deal, to grapple with.

 
The firms, the deal size, the US market, are all too big and different from India. But the news does make one wonder about the telecom firms that have a finger in the media pie. The Mukesh Ambani-run Reliance Industries owns Network18 and has just launched Jio, an ambitious telecom venture. Ambani is also one of the investors in TV channel Epic, in his personal capacity. There is the Tata Group’s stake in Tata Sky, Tata Communications and TCS. There is Bharti Airtel’s direct-to-home offering and its video app, Wynk. Then there’s Vodafone, Idea and all the others offering entertainment apps.

 
Each of the telcos are anywhere between five and 10 times the size of Star India, Zee Group or The Times Group — the top three media firms in India. Reliance is over 2.5 times the size of the country’s entire media and entertainment industry. Together they control over a billion consumers and their billing. That makes them better placed to dominate the media world organically or through acquisitions. Can they?
 

About a decade ago, selling ringtones, news, wallpapers and their ilk on the mobile phone was a Rs 25,000-crore business. The bets were that Bharti Airtel or Vodafone would soon overtake the big three in media revenues. That did not happen because the telecom firms refused to relax their vice-like grip on their 70 to 80 per cent share of revenues. This forced content creators and aggregators to look for alternatives. Soon they discovered apps and off-deck services. This freedom from telecom’s stranglehold helped digital grow faster.

 
Currently, advertisers spend Rs 6,000 crore trying to reach 343 million Indians online. This figure is growing at a scorching 38 per cent, more than twice the industry average. Also, the ecosystem is more equitable because Google’s YouTube, the largest video player online, set the context with revenue shares that average 50 per cent. So content makers and aggregators are active participants in helping to grow the market. It explains why video apps such as FastFilmz, Alt Balaji or news aggregators like Dailyhunt are able to raise money through equity and debt. And telecom firms, so far, are way behind their media counterparts on revenues, reach or sheer traction of their entertainment services.

 
But the industry is piquantly placed. The growth of online plus 4G, which could trigger more video consumption, has tempted the big telecom firms back with renewed effort. It may be a different market, but given their size, money and determination, telecom firms are a formidable force. Reliance, for instance, has spent Rs 150,000 crore building a wireless-cum-wireline network for Jio. That is more than 15 time the revenues of Star India. The chances that there might be AT&T-Time Warner or Reliance-Network18-inspired takeovers are high.
 
This still does not answer the question that media economists and regulators keep grappling with: Is a merger of content and distribution good or bad for consumers? Will it mean less choice and more monopoly power? The decision of the US antitrust authorities on the AT&T-Time Warner merger, which could lead to concentration of market power, will be an indicator.

 
Twitter: @vanitakohlik