Trouble likely to continue for telecom

The telecom companies in India are battling to retain their customer share through reduction of tariffs, increased data availability and improving quality. Increased competition in the industry, particularly since the entry of Reliance Jio in the market, has caused this churn and has also led to consolidation in the Indian telecom sector.

All telecom companies are now facing difficulty in managing their high debt due to spectrum purchases and declining revenue and margin pressures. This financial trouble is expected to continue in the coming quarters.

The aggregate gross revenue for all telecom companies slipped 16 per cent y-o-y for the quarter ended in June 2017 owing to pressure on realisation, according to a CRISIL report. Smaller players were affected more than larger operators, which led to a decrease in gross revenues. This means smaller players are losing customer market share to Reliance Jio (as the share of leading telecom players is increasing) as is evident from TRAI’s data.

For instance, Reliance Communication had a customer market share of 6.8 per cent as on June quarter 2017, which declined from 7.1 per cent on March quarter 2017. On the other hand, the share of top players such as Bharti Airtel has increased to 23.5 per cent from 23.2 quarter ended for the same period. Reliance Jio’s market share, however, has improved to 10.2 per cent from 9.1 per cent during that period.

Tough spot

The leading telecom players have reported a revenue decline since the September 2016 quarter. For instance, Bharti Airtel, the leading telecom player with a customer market share of 23.5 per cent (as on June quarter 2017), has reported a revenue decline of 14 per cent and profit decline of 75 per cent for the quarter ended in June 2017. The ARPU (Average Revenue Per User) for voice declined about 20 per cent to Rs 111 and the data ARPU declined 23 per cent to Rs 156 for the same period. Similarly, Idea Cellular reported a revenue decline of 14 per cent and loss of Rs 815 crore for June quarter 2017.

The incumbents have devised new data plans to counter Reliance Jio and retain subscribers. This has put pressure on their data tariffs and realisations (both data and voice) leading to a decrease in gross revenues. However, increase in volumes offset the revenue decline to some extent. For Bharti Airtel, the data usage per customer increased to 188 per cent for the quarter ended on June 2017. Therefore, increase in volumes helped offset the revenue decline to some extent.

That said, the reduction of IUC (Interconnection Usage Charge), implementation of GST and competitive pressures would keep revenue growth subdued in the coming quarters for telecom players. Also, the launch of Jio’s feature phone is likely to have a negative impact and data revenue is expected to decline further.

According to CRISIL Research, gross revenue for the telecom sector is expected to decline 15 per cent y-o-y in the coming quarter due to competitive pressures and growth in data volume will continue to be offset by sharp tariff drops.

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