Telecom Services Q4: Industry revenues fell 7% q-o-q

By: |
June 19, 2018 12:13 AM

With the exit of RCOM and Aircel, most large operators gained market share. Idea was the only large operator to lose market share (down 30bps q-o-q), losing market share in 14 of the 22 circles.

idea, bsnl, jio, telocom sector, telecom revenue, With the exit of RCOM and Aircel, most large operators gained market share. Idea was the only large operator to lose market share (down 30bps q-o-q), losing market share in 14 of the 22 circles.

Indian telecom revenues fell 7% q-o-q in Q4FY18 led by an 11% drop in ARPU. With the exit of RCOM and Aircel, most large operators gained market share. Idea was the only large operator to lose market share (down 30bps q-o-q), losing market share in 14 of the 22 circles. Jio’s market share has increased 400bps to 19%. With Jio targeting postpaid subscribers, we expect revenues to fall another c10% in the next 12m.

Industry revenues decline 7%: Indian telecom revenues (adjusted gross revenues, AGR) are down 25% from Q4FY16 levels. The fall was precipitated by price cuts in end-Jan by Jio and incumbents. Industry ARPUs fell another 11% q-o-q and now stand at `70/sub/month.

Idea’s market share falls even as small operators exit: The quarter saw the fringe players’ AGR revenue market share (RMS) falling c600bps. Despite this, Idea lost 30bps RMS q-o-q with access provider RMS loss higher at 80bps. Importantly, it lost significant share in key markets of MP, UP (W) and Maharashtra.

All other operators gain: Ex Idea, all other large operators gained RMS with Jio gaining the most at 400bps. Vodafone and Bharti both gained 60bps with RMS increasing to 20.9% and 31.8% respectively. Bharti + Uninor + Tata combined though lost 220bps RMS due to losses in Uninor/Tata. Interestingly, BSNL+MTNL RMS increased by 127bps q-o-q.

Jio market share still below its target: Jio’s market share now stands at 19.1% and has overtaken Idea (at 16%). Jio’s share though is still well below its ambition (50%) and our stable state expectation of 30%+. With smaller players having only 4% RMS, incremental gains for Jio will have to come from incumbents’ losses.

Near-term pressures to continue: Pricing equilibrium is still some time off and we expect further pressures. Jio’s recent postpaid offer, at a 50% discount to peers, will impact incumbents’ profitability. Postpaid contributes 20%+ of revenues and we believe any 10% cut in prices would drive a 2% cut in overall ARPU and 12/6% Ebitda hit for Idea and Bharti.

We remain cautious on the sector: We expect competitive intensity to remain high. We expect ARPU to remain under pressure and cost pressures to also increase. Additionally, we expect recovery post equilibrium (post mid-FY20) to be gradual. ARPU increases will require investment in both capacity and content in our view. We remain cautious on both Bharti and Idea (Underperform).

 

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