Vodafone Idea’s focus on improving network quality post the successful fundraise could slow subscriber addition rate for Bharti Airtel and Reliance Jio, S&P Global Ratings said in a note on Thursday. The same assumes significance as so far both Jio and Airtel have been adding subscribers at the expense of Vodafone Idea. The telecom operator once used to be the market leader with close to 35-40% of mobile subscribers. That was in late 2018 when Vodafone India merged with Idea Cellular Ltd.
Vodafone Idea has since steadily lost market share, with 19% of subscribers as of March 31. This was largely due to poor network quality and weakness in cash flows restricted the operator to improve on that.“An improvement in Vodafone Idea’s network quality could stem its subscriber churn. We expect that its peers’ subscriber growth could slow as a result,” S&P said.
In the January-March quarter, Bharti Airtel’s mobile subscriber base was at 352 million, while that of Jio and Vodafone Idea were at 482 million and 213 million, respectively. For the April-June quarter, analysts estimate Vodafone Idea to lose another 2 million subscribers, and Airtel and Jio to add 4-6 million subscribers.
With the recent tariff hikes of 10-27%, S&P expects telcos to improve their returns and sees a three-player competition now. “We believe entities will take the opportunity to embark on a much-needed focus on improving earnings and balance sheets. Investors will likely remain willing to amply fund the top-three players,” S&P said.
The ratings agency believes that Bharti Airtel and Reliance Jio may now focus on improving returns as against their prior stance of market share gains. “Vodafone Idea’s recent equity raising will likely let the telco fortify its network and narrow the quality gap with the other incumbents. It could make Vodafone Idea a more viable competitor, and thus a less attractive target,” it said.
Even as the ratings agency said the gains mainly reflect tariff hikes and rising demand for fast data, it added that steep spectrum costs, and unexpected regulatory shifts will remain key to the sector’s long-term viability.