The latest research report from CSLA indicates slowdown for Vodafone Idea, stability for Bharti Airtel and growth for Reliance Jio in the Indian telecom market.
Telecom industry is expecting three major trends in India, according to Deepti Chaturvedi of CLSA.
First, telecom sector revenues will regrow after falling by 25 percent over FY16-19. Increase in tariffs and rising 4G data adoption should drive 17 percent CAGR in sector revenues by FY22CL.
Second, after bottoming in 2019, margins should expand with revenue growth and sector gearing will fall, led by growing EBITDA.
Third, Jio and Airtel will leverage captive data users and growing digital services ecosystem of own apps/content and partnerships to differentiate, boost usage and reduce churn.
2020 will also see big sector events led by AGR case verdict, 5G spectrum auction and likely IPO of Reliance Jio.
Reliance Jio emerged leader with 35 percent (up 5ppt) revenue market-share and Bharti Airtel maintained 30 percent share.
Jio in 2019 gained 5ppt revenue market share to 35 percent, primarily from Vodafone Idea and government operator BSNL. This trend will continue and even as Reliance Jio will gain further as the leading operator with 44 percent revenue market share by FY22CL, Bharti Airtel will near retain revenue market share at 29 percent.
Reliance Jio in December 2019 hiked 4G tariffs by up to 35 percent, although these are still at 0 percent-20 percent discount to Bharti Airtel and Vodafone Idea plans. Reliance Jio will have 44 percent revenue market share with 500 million 4G subscribers at ARPU of Rs 164 by FY22CL and these will drive a 35-47 percent CAGR in revenues and EBITDA.
In 2019, Bharti Airtel retained its all-India/overall revenue market share of ~30 percent despite Reliance Jio’s gains. This reflects Bharti Airtel’s execution edge and lead on network over Vodafone Idea which has lost 4.4ppt revenue market share.
Reliance Jio will gain another 9ppt revenue market share by FY22CL and these gains will largely come from Vodafone Idea (4ppt) and BSNL (4ppt). Bharti Airtel will retain 29 percent revenue market share. Bharti Airtel is gaining incremental 4G share.
Airtel has been gaining incremental 4G market-share in 4G smartphone subscribers. This is currently running 8ppt higher at 30 percent than Bharti Airtel’s 4G market-share among smartphone users which along with Vodafone Idea’s vulnerability in B and C circle markets, inadequate 4G post-paid subscriber ramp-up of Reliance Jio and also falling 4G feature phone shipments leaves upside potential to Airtel all-India revenue market-share forecasts, CLSA said.
Vodafone Idea, which has already lost share, is vulnerable to higher share loss. Though Vodafone Idea has been improving the quality of its 4G network especially in metros and A circles and has even been performing better than expected with postpaid subscribers, it is still vulnerable to aggregate market-share loss, especially in B and C circle markets.
Vodafone Idea in 2019 lost 4.4ppt revenue market share on all-India basis. Vodafone Idea will lose another 4ppt market share with lag in 4G network versus peers despite integration of operations post-merger.
Vodafone Idea’s spectrum debt is Rs 890 billion / $12.5 billion and its spectrum burden is 2-4x of Bharti Airtel and Reliance Jio. Vodafone Idea’s Ebitda will jump 62 percent between FY20- 22CL. But it will be out of control at ~6x Ebitda assuming no spectrum payments given recent two-year payment moratorium. Vodafone Idea will struggle to fund Rs 160 billion of annual spectrum payments and Rs 130 billion Capex spend.
India’s data boom
India’s data consumption of 8-13GB monthly (up 30 percent) will continue in 2020 with 4G penetration rising to 74 percent in 22CL. The smartphone base in India would rise to 507 million by FY22CL and 4G smartphones form 100 percent of smartphone shipments.
The battle in 2020 will spill beyond mobile data networks and tariffs to digital services, CLSA said. Reliance Jio and Bharti Airtel have already been pushing OTT/digital content hard and increasingly will leverage captive data users and growing digital services ecosystem of own apps and/or partnerships to differentiate, boost usage and reduce churn.
Smartphones will cross 500 million in 2020 as the share of smartphones in India’s total mobile shipments rose to ~50 percent in 2019. Smartphone base in India will grow by ~50 percent to 507 million by FY22CL.
All three operators, Reliance Jio, Bharti Airtel and Vodafone Idea have been ramping up 4G network. While there has been 1.4x jump in 4G base stations in the last 12 months and these doubled over the past 18 months, Reliance Jio still accounts for 60 percent of sectors 4G base stations.
Bharti Airtel has increased its 4G base stations by ~60 percent over the past 18 months and as per TRAI data has 1.86x more 4G base stations vs Vodafone Idea.
5G in India
India Government is planning 5G spectrum auction in 2020 with worldwide 5G deployments having stepped up.
Chinese telcos have launched 5G services selectively in 57 cities in November-19 with about 10 5G handset models available.
India’s exorbitant $7 billion / 100MHz pan India 5G spectrum price auction will likely fail, the report said. However 2020’s likely failed 5G auction will trigger onset of lower spectrum prices, a big sector positive.
4G penetration would rise to 74 percent and smartphone base to 507 million by Mar-22CL. All three operators Bharti Airtel, Vodafone Idea and Reliance Jio increased prepaid tariffs by 14-33 percent in early December.
Reliance Jio still offers lowest rates across plans of 28 days and 84 days validity with 7-20 percent discounts (vs 15-20 percent earlier). However in new Rs399 bundled plan (data and voice) for 56 days Bharti Airtel, Vodafone Idea and Reliance Jio tariffs are now comparable. Also, Reliance Jio in the 4G feature-phone segment has ended Rs49 plan for 28 days with Rs79 as the new entry plan.
Bharti Airtel’s minimum ARPU plan has been hiked from Rs 35 to Rs 49. However, post-paid (~10-25 percent of operator revenues) tariffs are still unchanged by all three operators and the tariffs remain at significant premium to new prepaid plans.
In post-paid while Reliance Jio and Vodafone Idea have cheaper plans, Bharti Airtel offers more content vs Reliance Jio led by unmatched offers of ZEE5, Amazon Prime and Netflix.
There will be 44 percent growth in data subscribers to 885 million and 4G data penetration will reach 74 percent by FY22CL
The report said fall in dual SIMs will hit mobile subscriber growth in India. With rising 4G penetration wherein unlimited/high allowance bundled plans are popular as well as Bharti Airtel and Vodafone Idea’s rising minimum recharge plans, subscribers will select to recharge for higher Rs 49 or drop SIM completely.
There are 250 million dormant dual-SIMs as on December 2019 and total subscriber growth will be muted at 1 percent CAGR over FY19-22CL. Sector revenues will grow 17 percent CAGR by FY22CL.
India telecom revenue
After falling 25 percent from the peak, India mobile sector revenues have been growing 4-7 percent in the past two quarters in 2019 to annualised Rs 1,335 billion. Metro and A-circle markets (52 percent of sector revenues) have reported 2-5 percent increase in revenues in the past two quarters mainly due to rising adoption of 4G bundled plans.
With rising 4G penetration to 74 percent by FY22CL and aggregate ~40 percent tariff hikes should together drive 17 percent CAGR in India mobile industry revenue to Rs 2,065 billion by FY22CL.
The report forecasts 17 percent CAGR in telecom sector revenues to $29 billion by FY22CL. Also, over FY16-19, operator margins declined by 10ppts to 27 percent, due to sharp drop in revenues; however, operator margins will expand to 44 percent by FY22CL.