Even before Reliance Jio has rolled out its 4G services, there’s a surprising slowdown in data volume and growth momentum. The erosion in realisations in Q3 FY16 — Bharti Airtel’s average realisation rate per megabit fell 13% from a year earlier to 23.77 paise while Idea Cellular saw its rate fall by 17% to 22.3 paise — is cause for concern at a time telcos are stepping up investments to expand their 3G and 4G networks with purchases of spectrum.
Analysts are anxious the competitive intensity in the telecom space is hurting realisations on the one hand and driving up customer acquisition costs on the other as telcos woo them on to their networks. They apprehend the situation could worsen in the near term once Reliance Jio enters the market unleashing large capacity unless demand picks up dramatically. Reliance Industries has invested close to Rs 1 lakh crore in the telecom business, of which Rs 35,000 crore has been used to buy spectrum.
At Idea, data revenues grew by 45.7% year-on-year in Q3FY16, far lower than the 80% y-o-y growth just a couple of quarters earlier. The sequential increase in revenues was a subdued 7.2%. “The revenue trajectory slipped meteorically with volume growth slowing to 75.8% y-o-y and realisations dipping a steep 17% y-o-y to 22.3 paise per MB,” analysts at Kotak Institutional Equities (KIE) wrote. The Idea management conceded there was intense pressure on the realised rate for mobile data as wireless broadband consumer demand growth is slower than increased supply from operators launching/expanding 3G/4G footprints. At Bharti, data revenues at Rs 3,184 crore registered a growth of 50.6% y-o-y with an increase in the customer base of 29.9% and traffic by 73.3%.
The slowing data revenue growth has pulled down profit growth; earnings before interest, taxes, depreciation and amortisation grew by 13.7% y-o-y which, as KIE pointed out, broke Idea’s 11-quarter streak of 20%-plus growth. Bharti Airtel had reported a drop in average realisations in the data segment in the September quarter too, albeit at a lower rate.