Bleeding Telcos hang on to data

Meena, hailing from a remote village in Kolkata, is now addicted to video calls on her smartphone. From once a week ‘voice call’ back at home, she makes a ‘video call’ multiple times every day, taking advantage of the cheap data tariffs ushered in by the entry of a new player Reliance Jio (RJio).

No wonder, the data consumption has hit the roof. The monthly data usage per smartphone (GB/month) in India expected to go up to 13.7 GB by 2023 from 5.7 GB in 2017. The total mobile data traffic per month in India is GB expected to grow five times during from 1.9 EB to 10 EB by 2023.

The growth in data consumption has been a silver lining in an otherwise stressed telecom market hit hard by declining tariffs and intense competition.

THE JIO EFFECT

From 12 players to four, from a voice-centric market to a data driven one, and from a job creator to job losses, the once shining Indian telecom sector has undergone a drastic change over last year-and-a-half. And the trigger is none other than Mukesh Ambani’s new telecom venture RJio which hit the market in September 2016 with its free promotional offers.

Since then, there has been no looking back for RJio which has been gaining subscribers and revenue market share at a fast pace. But, for the incumbents, including Bharti Airtel, Vodafone India, Idea Cellular, it turned out to be a downward journey on a financial front with declining margins, lower average revenue per user and high debt levels.

“It is difficult to compete with a firm which is willing to offer its services for free. Many companies have exited or have been forced out of the market. Players who want to survive will have to continue to invest despite bleeding from the one side,” remarks a telecom executive.

The king amongst all this has been the mobile consumer who have been enjoying unlimited data at low, that too fixed, prices with voice becoming virtually free.

CONSOLIDATION: THE ENTRY AND THE EXITS

The entry of RJio on September 2016 triggered the consolidation wave in the telecom industry. The year 2017 was the year of exits.  This is not the first time that a Reliance Group telecom firm has shaken the industry. Back in 2001-02, Reliance Infocomm disrupted the market with its CDMA services which was priced as low as Rs 500/monthly.

The telecom business went to the younger brother Anil Ambani following the split of the empire after a bitter fight between the two. Now, Reliance Communications wireless business will be taken over by RJio as the former ran into huge debt and exited the consumer market while focusing just on enterprise business.

Norway’s Telenor decided to exit the market after it could not sustain its operations with similar offers as doled out by RJio. It has been a bumpy ride for Telenor in India since it entered the market at its peak around 2008, when new licences were given out by the government.  Telenor acquired a stake in Unitech Wireless, which had got pan India licences and started its Indian journey. But, soon, the industry was shaken by the alleged 2G spectrum scam which saw the Supreme Court cancelling all the new 122 licenses in 2012 given by the then telecom minister A Raja and ordered a spectrum auction. Some companies such as UAE’s Etisalat decided to exit the market that time itself, but Telenor decided to participate in the auction and won spectrum in seven circles. But, after Reliance Jio, the Norway telecom firm announced its exit.

Bharti Airtel, the market leader, has acquired the operations and customers of Telenor in no cash deal. Airtel is also in the process of acquiring wireless operations of Tata Group.

Sistema Shyam Teleservices, a unit of Russia’s telecom firm Sistema, merged its operations with Reliance Communications. But, ironically, later even Reliance Communications exited the mobile consumer market and has announced that its wireless assets will be acquired by Reliance Jio. Aircel, which was once exploring a merger with Reliance Communications, has filed for bankruptcy.

The biggest merger announcement has that been of Vodafone India and Idea Cellular which once completed (expected to happen this month) will dislodge Bharti Airtel from its top position in terms of number of users.

And not to forget, smaller players like Videocon, Tikona and Augere Wireless which sold off their spectrum to Airtel, though before the entry of RJio.

Mahesh Uppal, a telecom analyst says there have been 3-4 significant changes of direction in the telecom market in almost last two decades. The first one came in 1999 when the new telecom policy paved the way for revenue sharing instead of insisting on its pending dues from the industry. This was a major relief to the industry struggling with massive dues to the government. Subsequently, Reliance Infocomm disrupted the market in 2001-02 when it started offering limited mobility (through CDMA based mobile services). It increased the completion manifold and brought down the tariffs substantially. Another disruption occurred when several new players entered the market in A Raja’s tenure as Minister of Communications.

Telecom services, especially data, are ‘vanilla’ in nature and customers are rarely ‘sticky’ . There is every reason to move to whichever operator offers a better deal, he said. Telecom secretary Aruna Sundararajan had recently told DNA Money, “Currently, there is a consolidation phase going and it will have to play out. But the telecom sector is no stranger to similar situations. In the past, we have had the situation where the entire nature of this sector has undergone fundamental changes but has always grown stronger on the back of such disruptions simply because of the size of the market and extent of people who are underserved.”

SILVER LINING: DATA GROWTH

The silver lining in the sector continues to be the upsurge in data.

The 4G/LTE mobile services will continue to drive the momentum for the operators in the next few years, before there is a shift towards new technology 5G, artificial intelligence, internet of things and machine to machine communications.

The total smartphone subscriptions in the country will grow 2.5 times to cross 975 million by 2023.“We expect LTE to be the most dominant technology in India by 2023” says Nitin Bansal, head of network solutions for the Market Area South East Asia, Oceania and India for Ericsson.

LTE will account for more than 78% of the total subscriptions in the country by 2023 compared to the 20 percent LTE subscriptions in 2017. IoT will also pick up in a big way with cellular IoT connections in India to reach 72 million by 2023 growing at a CAGR of 25%. India also saw the second highest number of net mobile subscription additions by country in Q1, 2018, with the addition of 16 million mobile subscriptions and will have 780 million VoLTE subscriptions by 2023.

Last year, India was at the top position in terms of mobile data consumption with 150 crore gigabytes per month, surpassing the combined 130 crore gigabytes mobile data consumption of the US and China.

All the players have seen massive jumps in their data users and consumption, though revenue per user is on a decline.

TARIFFS CONTINUE TO DECLINE

The tariffs have hit the rock bottom, analysts say, though, in last 10 days only, there were two prepaid offers from Airtel and Jio doubling the daily data limit by 1GB and 1.5GB respectively, in the same tariff plan.

RJio and Airtel seem to be taking a calibrated yet aggressive approach to improve/maintain their subscriber acquisition momentum.

“The race to attract data users continues as RJio has doubled data benefits on its prepaid plans, while Airtel has introduced new segmented 4G offers and increased data limits on a few plans. These benefits are available without any cut in headline tariffs/effective Average revenue per user,” Morgan Stanley said in a research note on Thursday

The new tariffs won’t impact Arpus but the Jio’s priority is to continue gaining subscribers, even if that were to exert pressure on Arpus. “This could be an overhang for industry Arpus,” it said.

NEED FOR GOVERNMENT INTERVENTION

The industry numbers are not quite rosy. Apart from a cumulative debt of around Rs 7.6 lakh crore, the gross revenues of the industry are also on a decline.

The incumbents had earlier asked for some relief measures from the government. There was a relaxation in spectrum caps, while the tenure of spectrum repayment was increased in a bid to ease out the financial burden of the sector. In the draft of the new policy, the department of telecommunications has talked about rationalisation of various levies imposed on telecom players and ease of business going forward. But, many experts have called the draft as a wish list and called for timely implementation of various measures.