R Jio continues to gain subs market share even though additions in the month of April have slowed due to limited 4G device base. Industry revenue in 4Q17 declined on the back of this, the decline more apparent in metros and larger circles where R Jio has a higher penetration, and in smaller operators. Top-3 have outperformed this revenue decline. R Jio increasing network penetration in smaller circles and launch of 4G feature phone will be the next catalysts.
R Jio continues to add subscribers although slowdown in April
R Jio has continued to increase its subscriber base steadily to over 108 mn by the end of 4QFY17 with active subscriber base of 80 million. The most recent month has seen a slowdown in additions, primarily on the back of a limited 4G device ecosystem. We believe that 98% of the subscribers of R Jio are smartphone users (rest on Mi-Fi devices). Total 4G smartphone installed base of 131 million in India implies that R Jio is penetrated into 86% of the devices.
Industry revenue decline in 4QFY17; higher in metros
The growth of R Jio subscriber base and its free offering till the end of 4QFY17, has led to 11.7% y-o-y decline in industry revenues. R Jio effect was also evident in the decline being maximum in Metro and A circles where R Jio has a higher penetration, and where the smartphone ecosystem is better developed. Despite this, all category of circles (Metro/A/B/C) showed decline on y-o-y and q-o-q basis during the quarter. For the full year FY17, gross revenue decline was 2% y-o-y while the adjusted gross revenue declined 4.5% y-o-y.
Smaller players lose more, Top-3 decline but outperform industry
The higher growth from data services, decline in voice and the lower investments made by operators outside the Top-3 has started showing up in steeper decline in revenue for them. Ex of Top-3 have cumulatively shown a decline of 18.4% y-o-y in 4Q17 vs -11.7% for the industry and -9.3% y-o-y for the Top-3. The Top-3 combined now have a 76% revenue market share in the industry. As we stressed in previous reports, this decline in smaller operators would be extrapolated to industry consolidation. However, we think India will remain a five player market at best, with three equally strong competitors (Bharti, Voda-Idea combined, R Jio) being as bad for incumbents as a fragmented market at present.
R Jio growth being limited by 4G device ecosystem, catalysts ahead
Clearly, the growth in R Jio subscriber additions is being hampered by a limited 4G installed device ecosystem. We believe that two key catalysts will be critical for both R Jio and the sector – the launch of 4G feature phone (and its pricing) and network expansion into the smaller circles (and rural areas) where R Jio’s penetration is currently lower.
ARPUs under pressure; likely to continue
Industry growth will remain low given the ARPU compression underway due to falling tariffs and splicing of ARPUs, despite the stable subscriber additions reported. R Jio’s stance especially on extension of the current disruptive plans would be the key determinant. Incumbents will face additional pressure due to subscriber churn over a longer term with ability to maintain market share being the key differentiator. We prefer Bharti Airtel over Idea among the operators due to this and stronger balance sheet. We also have a Hold on Bharti Infratel.