The telecom industry's revenues might have taken a hit after entry of Reliance Jio (RJio), but analysts expect the average revenue per user (Arpu) to improve over the financial year 2019-20 owing to a surge in data consumption.
The overall revenue for the industry declined by 24% as Arpu fell about 19.8-21.1% since Mukesh Ambani-promoted firm forayed into the sector with free, limited-period promotions, according to an analyst note.
"Arpu can improve over FY19-20 for the leaders -- Bharti Airtel, Vodafone and Idea Cellular as they benefit from both elasticity in data usage and consolidation of subscriber identification module (SIM) by their users which is expected to result in higher wallet share from their customers," a note by Elara Capital said.
The entry of Mukesh Ambani-run Reliance Jio in September last year has impacted margins of existing telecom players including Bharti Airtel, Vodafone and Idea Cellular.
The total industry debt as on March 31, 2017, stood at Rs 4.6 lakh crore, of which Rs 1.8 lakh crore was deferred spectrum debt and Rs 2.8 lakh crore non-spectrum debt that includes estimated bank debt of Rs 1.1 lakh crore, as per information from an Icra report.
However, analysts believe that the promotional offers by Reliance Jio could end towards the end of current fiscal, following which the telecom sector financials could improve.
Another analyst report from Goldman Sachs says with RJio gradually increasing prices, the growth in earnings for the top player could come back from second quarter 2018.
"The potential catalysts include, first - improving India wireless trends as RJio raises effective prices, we expect RJio to end promotions by end of FY18. Second, increasing Arpus as smaller telcos lose market share and consolidate – Bharti to benefit from SIM card consolidation due to shift from standalone packs to bundled products."
The last few quarters have impacted the financials of all telecom players owing to free voice calls and cheap data charges being offered by Reliance Jio, which they were forced to match to remain competitive in the mobile segment. Existing operators have also asked the government to offer some relief to them to overcome the financial stress. The entry of RJio has also spurred consolidation in the industry with Vodafone India and Idea Cellular in the process of merging their operations while Bharti announced acquisition of Telenor operations in India.
Also, the consolidation phase is partly driven by the impact on industry economics and competition from the shift from voice to data. For some of the smaller telecom players may find it unviable to compete in the market and the number of players in the industry to come down to around 4-5 in the near future from 10 at present.
RJio recently announced the launch of 4G feature phone at virtually no cost, with just a refundable deposit of Rs 1,500. This is expected to create another disruption in the market which is aimed at luring the 500 million feature phone users
Elara Capital report adds that RJio's cost advantage may not last long. "Theoretically, running a pure 4G network will result in lower operating cost than a mix of 2G, 3G and 4G, but the cost advantage may be minor with the new rollout strategy being adopted by incumbents like Vodafone choosing to deploy 4G LTE by installing new single radio access network," it said.
"The wireless telecom industry is now at the tail end of a period of severe competition," it noted.
DISTRESSED CALL
- The last few quarters have impacted the financials of all telecom players
- This is due to free voice calls, cheap data charges being offered by RJio
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