A Year Of Consolidation For Indian Telecom Industry

The year 2018 saw the consolidation of the Indian mobile telecommunications market into three large private players — Reliance Jio, Bharti Airtel and Vodafone Idea — accounting for more than 90% of revenue and 80% of spectrum holding.

The merger of the Indian unit of Vodafone Plc. with Idea Cellular in August created India’s largest telco by number of subscribers (422 million), overtaking Bharti Airtel with 343 million subscribers and Reliance Jio’s 252.3 million.

Jaideep Ghosh, partner at KPMG, expects the three competitors to have similar number of subscribers by the end of fiscal 2019 but each with a different financial metrics.

Huge investment needed

“Large-scale investment is a must here for business-as-usual and also for spectrum acquisition, with scant assurance of any returns in the near term. Overall, we could expect the three operators having similar mobile subscriber numbers by the end of 2019 but with rather different financial performance,” Mr. Ghosh told The Hindu.

The Indian telecommunications sector is gearing up for a three-way fight among Reliance Jio, Bharti Airtel and Vodafone Idea with each of the three operators having different history and context.

For example, while Bharti Airtel had been operating for over two decades, Reliance Jio was launched commercially two years ago and Vodafone Idea, in its merged form, has had operations practically in the last three months.

“The context, priorities and strategies of the three could be rather different, while all serve the same market. There is financial stress at an industry level, undoubtedly. But the reactions of the operators aren’t consistent. Revenues of some have stalled and bottom-line seems elusive for now. Yet, the new challenger demonstrates profitability at an operating level. While the older operators are focused on cost containment or fast-tracking synergy benefits, Jio has articulated an expansion stance with forthcoming large-scale fiber launch anticipated, and perhaps 5G something in the early future,” Mr. Ghosh added.

Reliance Jio. with investments totalling more than Rs 2.5 lakh crore, seems better placed financially as it comes with debt of Rs 80,000 crore while Vodafone Idea has a debt of Rs 1.20 lakh crore on its books. Bharti Airtel has a debt of over Rs 1.13 lakh crore.

For the September quarter, Reliance Jio reported a net profit of Rs 681 crore on a revenue of Rs 10,901 crore, translating into ARPU (average revenue per user) of Rs 131.7 per month. Comparatively, Bharti Airtel reported a 65% fall in net profit to Rs 119 crore on a 6.2% fall in revenues to Rs 20,423 crore. Its domestic ARPU in the quarter fell to Rs 101.

Moody’s Investors Service recently placed Bharti Airtel’s rating on review for downgrade following low levels of profitability and expectations of weak cash flows. Vodafone-Idea, which reported its first quarterly results after the merger, recorded a loss of Rs 4,973.4 crore on revenues of Rs 7,663.5 crore, leading to a decline in ARPU to Rs 88 during the quarter. The company had announced a fund infusion of Rs 25,000 crore to help take on competition in the sector.

According to Naveen Kulkarni, head of research, Reliance Securities, these are challenging times for Vodafone-Idea and the strategic direction of the company is still cloudy.

“At this juncture, it is difficult to assess the equity of Vodafone-Idea but capital infusion by the promoters was much needed. Vodafone-Idea has solid spectrum footprint, credible brand and now operate in a highly concentrated market. The challenge from here on will be capital allocation to get the right customer mix which could entail a bundling strategy for managing capex/opex mix. It seems more likely that exit from category C circles and freeing up capital for targeting and retaining the high ARPU customers could work,” Mr. Kulkarni told The Hindu.

Vodafone Idea CEO Balesh Sharma had said that the market is “unsustainable” due to aggressive competition and warned that it’s detrimental to the government’s flagship initiatives such as Digital India.

Due to significant leverage of the merged entity, strong execution of cost rationalisation and raising of additional equity would be crucial for the financial health of Vodafone India, feels Noel Vaz, analyst with IIFL Securities. “Successful cost reduction efforts and efficacy of spectrum liberalisation in improving broadband capacity would be key points to watch going forward,” Mr. Vaz told The Hindu. – The Hindu

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