The industry is now consolidating on subscriber base.
Monthly subscriber additions in the telecom industry showed declining trend over March–April 2017, after posting high growth during October 2016 to February 2017 on account of Reliance Jio Infocomm Ltd.’s (RJio) free offerings. RJio posted the slowest growth in its subscriber base in April 2017 with 3.8 million net additions, although it continued to lead in terms of subscriber additions. RJio started charging for its services in April 2017; however, RJio’s pricing remains heavily discounted.
Bharti Airtel Limited (Bharti) reported addition of 2.85 million subscribers in April 2017. Relatively low additions were recorded by Vodafone India Limited (0.75 million) and Idea Cellular Limited (0.68 million) in April 2017. Reliance Communications Limited (RCom), Tata Teleservices Limited, Aircel Limited, Sistema Shyam Teleservices Limited, and Telenor India Communications Private Limited reported negative subscriber additions over February–April 2017 as a result of competitive intensity and resultant market consolidation.
RJio has continued to cause disruption with its low-price 4G bundled offerings, which are at a significant discount to its competition. RJio’s initial tariff plans suggested possibility of an uptick in the industry average revenue per user (ARPU), but its continued low pricing has put the industry revenues at risk.
Telecom tariffs are migrating to simplified bundled plans that club free voice and SMS with competitively priced data. Thus telcos are charging mainly for data, leading to convergence of voice and data ARPUs. RJio’s current tariff plan offers 1GB data per day for Rs 309 for 84 days, which translates to Rs 1.2/GB compared with pre-RJio launch industry average of about Rs 250/GB and RJio’s indicated launch price of Rs 50/GB.
In response to the disruption, consolidation in the sector has accelerated with Vodafone India (hitherto No. 2) and Idea (No. 3) announcing a merger in February 2017. Moreover, smaller telecom companies are already exiting; Telenor India Communications sold operations to Bharti, which got approval from the Competition Commission of India in June 2017. The consolidation may help market dynamics to improve; however, revenue pressures remain in the short term on the back of aggressive RJio pricing to retain its rapidly built customer base. Key challenge for telcos remains to retain their high-ARPU-generating customers.
Industry revenue declined in the quarters ended December 2016 and March 2017 on account of free services offered by RJio. Adjusted gross revenue declined 9.2 percent Y-o-Y to Rs 373 billion in the quarter ended December 2016 and further declined 6.7 percent on a Q-o-Q basis to Rs 348 billion in the quarter ended March 2017. Industry revenue would be at risk as blended ARPU is expected to reduce unless compensated by high data usage. This, coupled with a pressure on EBITDA margin will impact the sector’s debt servicing and financial flexibility. Broadband penetration is currently moderate at 20 percent, but rapidly growing data usage has a meaningful upside from the current levels (average <1 GB per capita). The higher data usage will demand increasing investments in network OpEx and CapEx, thereby resulting in negative free cash flows.
4.4 million GSM subscribers were added during April 2017, slowing from 8.3 million in March 2017. This was led by lower additions by RJio, although it added the highest number of subscribers among telcos. Cumulative subscriber additions for the industry spiked between September 2016 and March 2017, mainly driven by the dual-SIM phenomenon, post the launch of RJio. These numbers are also unadjusted for visitor location register (VLR) and appear high to that extent.
RJio gained 9.6 percent market share between September 2016 and April 2017. Weaker players are losing market share with the competitive play shifting to data from voice.
RJio garnered a quick subscriber base of 112.5 million by April 2017 due to its free offerings. Although it has begun to price from April 2017, the tariffs are deeply discounted.
Based on India Ratings & Research report “Telecom Connect”, June 2017 Edition
Associate Director, Corporates,
Associate Director at India Ratings & Research Pvt. Ltd. (Fitch Group)