The March quarter results confirmed the worst for India’s telecom majors. Revenues were down sharply for Bharti Airtel and Idea Cellular, and key parameters, such as the average revenue per user (ARPU) and realisations, were at their lowest in the last five to seven years.
Idea reported losses, while Airtel’s profits were down nearly 78 per cent. Vodafone, Idea and Airtel saw ARPUs decrease to ₹105-116, down a good 25-30 per cent, over the last year. Even Reliance Jio’s ARPU was sequentially down, but higher than its peers, at ₹137.
The hyper-stiff competition in tariffs, Telecom Regulatory Authority of India’s (TRAI) intervention in reducing interconnect charges, and down-trading of data packs by customers, all played a part in squeezing the major telecom operators’ financials.
Even so, it may not entirely be a sob story. Three important factors, if they play out over the next year or so, may usher in happy tidings for the likes of Vodafone, Idea and Airtel.
Fewer competitors, steadily decreasing churn in the customers of these operators’ networks, and increasing levels of ‘active’ subscribers for the top mobile operators, are the key factors that could bring back pricing power to the operators over the next couple of years. Apart from these, data usage (up three-fold in the last year) is another lucrative avenue that could be monetised better.
Fewer operators
Compared to the last few years, 2018-19 (and the years to follow) will see fewer players in the mobile arena. Several regional and national players — Aircel, Tata Teleservices, Reliance Communications (RCom) and Telenor India — have either merged with larger operators or filed for bankruptcy.
Tata Teleservices (mobile operations) and Telenor will merge with Airtel, and RCom (mobile operations) with Reliance Jio; Idea and Vodafone are set to integrate and become a single entity. Aircel has filed for bankruptcy.
Effectively, only three dominant players — Airtel, Idea-Vodafone and Reliance Jio — remain, with state-owned BSNL coming in a distant fourth. Therefore, from seven to eight operators a few years back, the market has just three large players left.
Subscriber base
The churn in subscribers of the top operators has been declining over the past four quarters. Subscribers are moving out of the networks of Airtel, Idea and Vodafone at a much slower pace — 2-4 per cent in the recent quarter, down significantly from 4-7 per cent a year ago.
Thus, customers seem to be settling in with their networks and aren’t exiting as quickly, given that tariffs across operators have started to converge, to a reasonable extent.
Active base
One key parameter that indicates how much customers stick to their operators is the visitor location register (VLR) data. The VLR is a list of subscribers who use their mobile services regularly or are in a position to send/receive calls and messages often.
The proportion of ‘active’ subscribers for Airtel and Idea is in excess of 100 per cent, while it is 86-95 per cent for Reliance Jio and Vodafone. A ratio of over 100 per cent indicates that some subscribers from one network may be roaming in a different operator’s network. The proportion of active subscribers has improved for the top operators in the last year. All this suggests that the phase of hyper-competition in terms of chasing subscribers at all costs may be slowing down.
With fewer players and a large active subscriber base, it is only a matter of time before tariffs bottom out and start to rise. Of course, the process may take time — at least another year or so.
Data usage
Data consumption is skyrocketing. Data usage in the March quarter has been in the range of 6-9.7 GB for Airtel, Idea and Jio. The numbers have gone up three- to four-fold over the last year.
With subscribers hooked to networks, monetising additional data use could bring back revenue and profit growth for the operators. Plummeting margins, surging debt, and falling interest coverage ratios would force operators to take a call on increasing their tariffs sooner than later.
The backdrop of easing headwinds may allow top mobile service providers to hike rates without hurting their customer base.