Airtel to retain revenue share despite Reliance Jio 4G

The entire telecom market is looking forward for action from Sunil Mittal, the promoter of Bharti Airtel and Mukesh Ambani, the promoter of Reliance Jio, in the 4G space.

The industry is debating that Bharti Airtel will be forced to spend more to manage pressure from Reliance Jio. The telecom industry is also thinking that there will be significant reduction in the data prices of Bharti Airtel.

But Deutsche Bank Markets Research predicts that the revenue share and margins of Bharti Airtel are unlikely to be affected by the 4G launch of Reliance Jio Infocomm.

“Weaker telecom network operators that have a combined 25 percent revenue share are more at risk,” said the report.

Reliance Jio Infocomm, which received the BWA license in 2010, is aiming to launch 4G in December 2016.

Deutsche Bank Markets Research said Bharti Airtel appears to be better prepared with its 4G plans and it does not anticipate any impact on its revenue share or margins from the Jio launch.

There are parallels between Reliance Jio’s current playbook and Reliance Communications’ launch in 2003. The executive management is the same in both instances. Reliance Communications’ pan-India launch was on a scale comparable to that of the incumbents and it surpassed Bharti Airtel’s voice throughout within three years.

However, Bharti Airtel’s revenue share and margins were not affected by the entry of Reliance Communications in 2003. “Contrary to investor expectations, we do not anticipate any impact on its revenue share or margins from Jio’s launch. We believe Bharti’s business performance is poised for multi-year improvement,” said the report.

Airtel 4G LTE drive

The continuity in Bharti Airtel’s management and the lessons learnt post Reliance Communications’ launch in 2003 have likely helped it to anticipate Jio’s strategy this time around.

Bharti Airtel has been strategic in acquiring the largest amount of incremental spectrum since 2014. This has helped it to pre-empt Jio by launching 4G on a pan-India basis and increase the competitive gap with incumbent peers, which remain spectrum constrained in their key markets.

Jio 4G will impact data yields but not the revenue table of the sector. Data yield to fall 20 percent per annum for next three years to reach Rs 0.12 per MB compared to the current level of Rs 0.24 per MB. Jio will not affect package pricing. It is likely to offer more data at existing price points.

“We forecast three-year revenue growth of 12 percent and an EBIDTA margin of around 38 percent for Bharti Airtel’s domestic mobile business. Bharti Airtel’s next phase should be marked by a better competitive position in India and recalibration of international operations.