Indian telecom operators – Airtel, Idea Cellular, Vodafone, Reliance Communications and Tata Teleservices – are going to face challenging market conditions in the coming months due to special data and voice offers from Reliance Jio.
All the telecom operators are already facing the heat. Bharti Airtel’s net profit fell 55 percent, while Idea Cellular posted loss of Rs 478.9 crore and Reliance Communications posted net loss of Rs 531 crore in Q3.
Five important announcements made by Reliance Industries (RIL) chairman Mukesh Ambani make life tougher for Sunil Mittal, Kumar Mangalam Birla, Anil Ambani and the Tatas.
First, Mukesh Ambani said Reliance Jio will provide 20 percent more data as compared with any mobile data offers from the main rivals of Jio. This means that Airtel, Idea, BSNL, Vodafone, among others will continue to face the music in the Indian telecom market. The established telecom operators are yet to respond to Mukesh Ambani’s announcement on February 21.
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Vodafone India said its service revenue declined 1.9 percent in Q3 fiscal 2017 against 5.4 percent increase in Q2. Data revenue growth slowed from 16 percent in Q2 to 0.6 percent in Q3. Vodafone India posted decline in data mobile customer base to 65 million from 69.6 million in Q2.
Vodafone India’s mobile data price fell 11 percent year-on-year, while the growth in data usage per customer slowed to 15 percent compared to 28 percent in Q2.
Idea Cellular admitted that it dropped its mobile data rates (ARMB) by 15.2 percent in Q3 to 15.9 paisa per megabyte vs. 18.7 paisa in Q2 FY17 due to the presence of Reliance Jio.
Idea Cellular, for the first time, lost 5.5 million mobile data customers. Idea Cellular has 48.6 million 2G, 3G and 4G users in Q3 vs. 54.1 million in Q2 FY17. Despite slashing mobile data rate by 15.2 percent, mobile data volume grew by 1.3 percent to 108.8 billion megabyte and per subscriber data usage grew marginally to 703 megabyte against 694 megabyte.
Second, Reliance Jio will continue to offer bundled offer of data along with free voice, SMS, roaming to all its customers. For the next 12 months, the current 100 million subscribers, who took Jio to the top position in Indian mobile Internet market, will get unlimited plans at Rs 303 per month. This Rs 303 is well above the Indian ARPU of less than Rs 180. All these users need to spend Rs 100 as a life time membership fee.
Data ARPU of Idea already dipped to Rs 111 from Rs 130. Idea Cellular said the non voice revenue contribution to service revenue fell to 27.2 percent as mobile data revenue contribution declined to 20.2 percent level.
Third, Reliance Jio will continue to offer free voice and roaming services. Voice still accounts for the larger revenue for Indian telecom operators. Following the free voice offer from Jio, Idea was forced to reduce its voice call rates by 10.6 percent to 29.6 paisa per minute vs. 33.1 paisa in Q2 FY17. There will be more pressure on voice business if Jio continues to add subscribers to its 4G network.
Despite drop in calling tariffs, Idea Cellular could enhance voice minutes by 7.3 percent to 210 billion minutes vs. 195.5 billion minutes in Q2 FY17 that led by double digit growth in incoming call volume.
Fourth, Mukesh Ambani said Reliance Jio, which already has 2x data capacity than competitions, will double the coverage. At present, no Indian telecom operators are keen to make huge investments in networks to address challenges from Reliance Jio. Capacity enhancement will prompt data users to move and stay with Reliance Jio.
Five, Mukesh Ambani will finally start generating money from his telecom venture. The membership fee of Rs 99 and Rs 303 bundled offer will be enough to generate Rs 10,000 crore per quarter. Jio will add more 4G subscribers in coming months going by the demand for data speed.
This means, the balance sheet of Reliance Jio will become robust in order to raise funds and beat the competition.
The pressure on EBITDA margin will continue to impact the Indian telecom industy. Idea Cellular’s revenue in Q3 fiscal 2017 fell 6.9 percent to Rs 86,627 million on sequential basis and EBITDA dipped 23.8 percent to Rs 21,655 million. EBITDA margin of Idea at 25 percent was lower by 5.5 percent.