Q1FY17 was a subdued quarter for the industry, driven by further deceleration in data growth and pressure on voice volumes. While Bharti was able to maintain its footing driven by sharp execution, Idea disappointed with sharp deceleration in voice volume growth and pressure on margins. Slowdown in pace of data adoption continued and this metric is likely to play as important a role in data pricing trajectory as the launch pricing strategy of R-Jio.
Subdued quarter overall for the industry — Bharti holds fort, Idea slips
Q1FY17 earnings print of Bharti was broadly in line with expectations, while Idea’s was below expectations. The bigger takeaway, however, was the sustained deceleration in the pace of growth of data volumes at a time when operators are making data more affordable and investing aggressively in building data networks. Managements of both Bharti and Idea were quite vocal on this rather surprising development (slowing volumes driven by slowdown in incremental adoption), and believe that continued customer education will be critical in driving data adoption.
Key highlights from the quarter
The voice RPM-volumes tradeoff: Idea retained its stance of cutting down on voice promotions for the second quarter running but got impacted by a lukewarm response to this pricing signal from the larger incumbents Bharti and Vodafone. Idea’s voice volumes grew just 1.8% y-o-y in Q1FY17, a far cry from the 15%+ volume growth seen just a few quarters back; voice RPM increased 5.3% y-o-y leading to a growth of close to 7.6% y-o-y in voice revenue. We note that the management has indicated that it has already started working towards moderating voice prices to regain competitiveness. Bharti maintained status quo on pricing and saw healthy growth in volumes at 8.3% y-o-y. What was disappointing, however, was that neither of the companies benefitted materially on voice volumes from the wide CDMA network shutdowns by RCOM.
Data volumes slowdown: Idea’s data volumes grew by 13.2% q-o-q coming in higher than Bharti’s 7.7%; this was largely driven by a sharp cut in prices by Idea (almost 8% to 21.1 p/min); the cut in prices also led to sharp increase in data customers to 49m in Q1FY17 compared to 44m in Q4FY16. Vodafone’s volumes grew by just 6.5% q-o-q. These numbers (except for Idea) clearly show a slowdown from the 12%+q-o-q growth witnessed a few quarters back. Data revenue growth (y-o-y) for Bharti, Idea and Vodafone came in at 35.1%, 27.4% and 22.3% respectively.
Bharti continues to roll out aggressively; Idea and Vodafone take a breather: While the pace of data growth has slowed down, operators (especially Bharti) continue to invest to enhance their mobile broadband footprint. Bharti added close to 20,000 3G + 4G sites in Q1FY17, continuing the trend set over the past few quarters. Idea added close to 6,500 3G + 4G sites, compared to 17,000 in the previous quarter. Vodafone’s site additions also slowed down to 6,000 3G + 4G sites as compared to 15,000 in Q4FY16. Idea’s and Vodafone’s lower rollout numbers are largely a reflection of the relatively limited spectrum portfolio, especially in 4G. However, it might also be an indication of their view on the market, where both companies have been relatively conservative compared to Bharti.