As Reliance Jio, Airtel Hold On To Tariffs, Volume Growth Falls Off The Cliff

Telecom Regulatory Authority of India’s (Trai’s) latest performance indicator report has mixed news for telecom investors. Consumer spends on telecom services, which had been falling for several quarters, have stabilised recently. But while telecom companies hold on to tariffs and maintain revenues, volume growth came off significantly in the March quarter.

First, the good news on revenue. Aggregate consumer spends on mobile services, including goods and services tax, stood at around Rs. 35,000 crore in the quarter ended March, according to an analysis by Kotak Institutional Equities. This translates to annual spend of Rs. 1.4 trillion, 5% higher than the lows of Rs. 1.34 trillion in the September 2018 quarter.

The stabilization in revenue comes on the back of stable pricing and implementation of minimum recharge plans for pre-paid users. None of the major players have announced any cuts in their tariffs from February 2019, points out India Ratings and Research Pvt. Ltd

Revenue trends are unlikely to see major change in the recently concluded June quarter either. Both Bharti Airtel Ltd and Vodafone Idea Ltd are expected to report stable revenue in comparison to the March quarter. “Overall, our prognosis is that of a steady quarter with Bharti reporting a modest 1.6% sequential growth in wireless revenues and Vodafone Idea reporting a flattish revenue print, largely on the back of higher number of days in the June quarter versus March,” analysts at Kotak said in a results preview note.

The stable revenue scenario, however, does not mean the industry’s challenges are behind it.

The March quarter industry internals also show easing of volume growth. Industry voice volumes grew just 18% (YoY), the slowest since the commercial launch of Mukesh Ambani’s Reliance Jio, points out Kotak. 4G data usage per subscriber grew a modest 1.6% sequentially in the March 2019 quarter, implying usage is plateauing for many smartphone users. In the preceding three quarters, growth had stood at 2.8%, 5.9% and 12.2%, respectively.

Also, the postpaid segment continues to see a sharp fall in average revenue per user (Arpu). Consumers have been downtrading their usage plans, reflective in the 33% year-on-year (YoY) fall in postpaid revenue. The churn is expected to continue in June quarter as well. “Even as like-for-like pricing has been stable for the past few quarters, incumbents continue to see net negative impact of consumers trading up and trading down on the average revenue per user axis,” analysts at Kotak add.

While volume trends are not worrying yet, telecom companies still face the herculean task of profitability improvement and balance-sheet repair. “Despite the likely stabilisation of revenues and possibly profitability, telcos would continue to rely on external funding arrangements to support their debt servicing and elevated capex requirements,” India Ratings and Research said in a note.―Livemint