Although there has been some stabilisation in revenues of mobile services in the fourth quarter of FY19, recovery of the telecom sector will take time as credit profiles of operators will remain under pressure in the medium term. This will be because of high competitive intensity, elevated debt levels and continued reliance on capital infusion for debt-servicing and capex, India Ratings and Research (Ind-Ra) said on Tuesday.
The agency said revenue recovery may continue going ahead, albeit at a slower pace, as the proportion of high average revenue per user (ARPU) subscribers in the data and broadband (3G+4G) categories continues to be low at 40-44% and 30%, respectively, of the overall subscriber base.
After falling steadily over the last 2.5 years, data tariffs (expressed in terms of GB per user per month) rose 11%-17% during October 2018-February 2019, and has been stable since then.
Nevertheless, RJio’s data tariffs remain at a discount of 25-30% compared to Bharti Airtel and Vodafone Idea.
As per Ind-Ra, while near-term liquidity issues have been addressed through capital infusion and asset monetisation, the business model is unlikely to become attractive unless players record a substantial improvement in profitability.
The removal of low-paying and incoming-only customers led to a sharp rise in the ARPU of Airtel and Vodafone Idea. Ind-Ra believes that, with the subscriber base likely to stabilise at current levels, any incremental tariff hikes would be revenue accretive.
For Airtel and Vodafone Idea, the proportion of data subscribers in total subscribers increased rapidly to 41-44% in Q4FY19 from 28-33% in Q1FY19. The share of broadband (3G+4G) also increased meaningfully to 31-33% in Q4FY19 from 17-22% in Q1FY19. Airtel has been reporting steady growth in data traffic. With average monthly usage of 11 GB per user, it overtook RJio in data consumption. The rising share of high-ARPU data subscribers along with rising data traffic and stabilising data tariffs augur well for future revenue growth.
However, Ind-Ra said continued reliance on external fund raising remains credit negative. While R-Jio has spun-off its fibre and tower assets into separate special purpose vehicles (SPVs), Bharti and Voda-Idea have concluded rights issues of Rs 250 billion each. In spite of these capital infusions, the credit metrics of telcos remain at elevated levels, and a material improvement in profitability would be essential for an improvement in their credit profiles.
The agency said any incremental spending for the acquisition of additional spectrum along with investments in 5G technology may further stretch the balance sheets of telcos, and derail the recovery process.―Financial Express