Telecom Connect: Industry-Wide Revenue Recovery Led By Tariff Hikes; Sustainability To Be Monitored

Posted by India Ratings and Research

India Ratings and Research has published the February 2020 edition of its credit news digest on India’s telecom sector. It highlights the trends in the telecom sector, with a focus on subscriber additions, subscriber market share, broadband subscribers, data usage, pricing and regulatory and industry updates.

The key highlights of the report are as under:

Industry-wide Revenue Grew in 3QFY20; Momentum Needs to be Monitored: The industry revenue increased 9% qoq in 3QFY20, supported by tariff hikes, which has more than offset the decline in the subscriber base in the given quarter. After almost two years, revenue grew across all the major telecom companies (telcos) in 3QFY20. However, Ind-Ra believes that this momentum needs to be monitored. This is because apart from tariffs, revenue depends on subscriber base, which declined in November and December 2019. Moreover, even after the tariff hikes, the competitive pressure for telcos remains elevated since Reliance Jio Infocomm Ltd’s data tariffs are still 25% lower than those of Bharti Airtel Ltd and Vodafone Idea Limited.

RJio Continues to be Largest Player by Revenue and Subscriber Market Share: After becoming the largest telecom player by subscriber and revenue market share in November 2019, RJio maintained its position in December 2019 with a subscriber market share of 32.1% and a revenue market share of 35.4%. This is significantly higher than its subscriber market share of 23.8% and revenue market share of 29.8% a year ago. The increase in Rjio’s market share is largely at the cost of a reduction in VIL’s market share. VIL sheds 100bp revenue market share and 20bp subscriber market share on qoq basis, largely to RJio in 3QFY20. That being said, the growth in subscriber base of RJio moderated in December 2019. As against the average monthly increase of around 9 million subscribers in the last one year, the subscribers grew by only 0.1 million in December 2019.

Industry Showing Signs of Recovery: Average revenue per user (ARPU) reported by telcos has started showing signs of recovery since 4QFY19. The recent tariff hikes by telcos in 3QFY20 have resulted in an increase in ARPU of all three major telcos in the range of 2%-7% qoq. Furthermore, the share of broadband subscribers in the overall subscriber base is on a continuous rise. The rising share of data subscribers, along with growing data traffic and stabilising data tariffs, augurs well for revenue growth. Additionally, Ind-Ra opines that the release of a consultation paper by Telecom Regulatory Authority of India, to evaluate setting up floor prices for telecom tariffs, and the extension of the implementation of zero interconnect usage charge regime by a year are positive moves for the telecom industry.

Recent Rating Action on VIL: Ind-Ra downgraded VIL’s Long-Term Issuer Rating to ‘IND B’ from ‘IND BBB-’ while maintaining it on Rating Watch Negative in February 2020. The downgrade reflects severe stress on VIL’s near-term liquidity post the Supreme Court’s ruling on 14 February 2020, which directed telcos to pay the adjusted gross revenue (AGR)-related liabilities to the government of India by 17 March 2020. Subsequently, the department of telecommunications sent demand notices towards AGR liabilities to the telcos on 14 February 2020, requiring. them to make the payment of AGR dues by 14 February 2020 itself which are pending at VIL. Ind-Ra believes VIL does not have the ability to pay the dues by 17 March 2020, given the lack of clarity on promoter equity infusion, severe erosion in refinancing flexibility and insufficient cash balance (INR125 billion as of December 2019).

―CT Bureau