India Ratings and Research (Ind-Ra) has shared its forecast on Capex related investment, spectrum auction, revenue share, subscriber share, etc. during fiscal 2018-19.
Revenue share
The rating agency is predicting that Bharti Airtel will have a better revenue market share than Vodafone-Idea and Reliance Jio in the 12-18 months.
Tanu Sharma, Prashant Tarwadi and Salil Garg, analysts at India Ratings, believe that Airtel will have India revenue market share of 35.5 percent as compared with 39.3 percent in fiscal 2017.
On the other hand, the Idea-Vodafone combination will have a revenue share of 35.3 percent against 42.4 percent.
Reliance Jio will be the big gainer with its revenue share growing to 21.9 percent post the consolidation in the Indian telecom industry.
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The report said Airtel will have 34.9 percent subscriber share as compared with 35.9 percent in November 2017.
Vodafone-Idea Cellular will have a subscriber share of 35.7 percent against 37.8 percent.
Reliance Jio’s subscriber share will be 20.3 percent from 13.9 percent. BSNL will have a subscriber share of 9.2 percent.
India telecom outlook
India Ratings and Research has revised the outlook on telecommunications services sector to negative-to-stable for FY19 from negative in FY18.
Weak average revenue per user (ARPU) outlook, coupled with elevated Capex for mobile data network and technology will continue to suppress the sectoral credit outlook.
The return of pricing power is uncertain and would be dependent upon factors such as RJio’s pricing strategy and consumer reaction to tariff increases. The growth in data consumption is likely to remain high in FY19.
Indian telecom industry revenue will remain stable in FY19, although revenue growth would be uneven across telcos. EBITDA margins for extant telcos — excluding Jio — will remain subdued as IUC could be reduced further in line with the government of India’s decision to move to zero IUC by 2020.
Jio’s ARPU and EBITDA margins will remain higher than the industry average because of customer mix (100 percent broadband customers versus 25 percent-30 percent with other telcos) and lowering of IUC.
Revenue will be challenging in FY19 for telcos excluding RJio due to declining data tariff and voice revenue.
Jio will gain a higher share from the exit of small telcos and also from first-time data users. Jio is likely to maintain subscriber acquisition momentum by continuing with discounted pricing policy or bundling more services.
2G subscribers will directly shift to the 4G platform, making 3G offerings from existing telcos irrelevant for Indian markets.
Investments
Telecom Capex in FY19 will be towards network augmentation, technology investments and innovative offerings to capitalise on the rising trend of convergence of telecom and media in line with developed markets.
Telecom operators will be making investment towards fibre backhaul network and cellular site upgradation and decongestion.
Technology Capex would revolve around voice over long term evolution (VoLTE) and early Capex into 5G ecosystem related to Internet of Things (IoT).
Telcos will invest in content partnerships and vertical integration with handset providers as ability to provide bundled offerings connecting handsets, broadband, cable TV, over the top could emerge as a key differentiator.
Capex (mostly non-spectrum) to revenue ratio for telcos will remain at 25 percent in FY19, indicating a Capex estimate of around INR500 billion on a revenue base of INR2 trillion. Airtel’s capex for India mobile business was INR161 billion in 9MFY18, translating into high Capex to revenue ratio of 44.8 percent. Jio’s Capex for FY18 is estimated at USD3.5 billion.
Spectrum auction
There’s sufficient spectrum available with top telcos in India in line with the consolidation strategies. Most telcos have strengthened their business model via acquisition of spectrum at attractive prices. FY19 may not witness active participation in spectrum auctions. This forecast indicates that most telecom operators will not be spending on 5G spectrum, if it is available for auction, during the current fiscal.
