- Zero maintenance charges
- Zero fees for demat account opening
- Volume based brokerage
Read More >
-
Telecom turmoil: Jio juggernaut aside, incumbents on the ropes
Publish date: 28th August, 2018
The country’s telecom industry is in the doldrums, if you discount Reliance Jio that is.
Reliance Jio’s eye-grabbing tariff plans have rocked the boat of the big two incumbents: Bharti Airtel and Idea-Vodafone.
In the quarter ended June, both Bharti Airtel and Idea-Vodafone did report profits, but the numbers don’t tell the tale really.
Airtel’s malaise
Bharti Airtel reported a consolidated net profit of Rs 97.3 crore in the first quarter, boosted by an one-time gain made from a deferred tax asset in Nigeria. India’s largest telecom player managed to stay just above the red zone because it received Rs 515.6 crore in deferred tax gains in Nigeria.
Bharti’s India business, though, recorded a Rs 940.4 crore loss this quarter as against a profit of Rs 834.9 crore in last year’s corresponding period.
Expectedly, the company’s revenues were not much better either, falling by 13.5% in the quarter. The slide is especially especially alarming because the company’s India business accounts for 75% of its revenues.
The management’s vim and brio in the early Jio days has mellowed somewhat. The Bharti top brass would then insist that they were confident of gaining substantial market share and further consolidate their numero uno position in the sector. But now, the company accepts that they foresee three large players (Bharti, Vodafone-Idea and Jio) with an equal market share to dominate the telecom industry going forward.
The management also admitted that the current average revenue per user (ARPU) levels remains unsustainable, implying that Jio's affordable data and talktime plans have shaken up the industry.
The subscriber numbers seem to be under threat too. Bharti had seen its subscriber base swell by 4% last quarter due to shutting down of Aircel and Reliance Communication. But that advantage will come under scrutiny due to the sustained Jio juggernaut.
Idea’s un-idyllic mess
Idea is in the dire straits, even more so than Bharti because the latter can at least bank on a healthy balance sheet and its strong Africa business.
Idea may have reported a profit for the first time in six quarters but that was largely due to the sale of its tower arm. The telco’s net profit stood at Rs 256.5 crore, mainly due to the Rs 3,364.5 sale of Idea Cellular Infrastructure Services.
The company reported a decline in revenues (3%), operating profit (54%), ARPU (Rs 100) and margins by more than half. A livemint.com report suggests that the operating profit this quarter was half of its interest costs.
The company has ceded ground to Jio in the revenue market share (RMS) too. Media reports suggest that Idea Cellular RMS has slid by 106 basis points to 15.4%, while its soon-to-be-partner Vodafone’s RMS slipped by 175 basis points to 19.3%. On the other hand, Jio’s RMS has expanded by 253 basis points at 22.$% in the quarter-ended June.
This indicates that both Idea and Vodafone have buckled under Jio’s disruptive pricing in the broadband data service.
To exacerbate matters, Jio’s aggressive pricing has chipped away at both Idea and Vodafone’s subscription base — Vodafone’s subscriber count fell by 1.6% and Idea’s declined by 3.4%.
Jio’s sustained march
Jio’s numbers are in stark contrast. A 14% quarter-over-quarter revenue growth, lower cost structure and confidence in the fixed broadband business suggests that the Mukesh Ambani-helmed company are on an upward march. The company’s three-on-the-trot quarterly profits also makes the incumbents’ woes look worse.
The fact that Jio reported a revenue growth without the help of the industry’s revenue pie suggests that the company is aggressively striving to become the top dog in the telecom sector.
Another foreboding aspect is the company’s focus on home broadband. Besides the meteoric rise in the wireless data business, Jio aspires to provide broadband connections to 50 million homes, which is almost three times larger than the entire industry’s total count at the moment.
The road ahead
Both Bharti Airtel and Idea-Vodafone are in a catch-22 situation. They have two alternatives ahead of them. They can either match Jio’s pricing and see a sharp reduction in the revenue pie or they can maintain the price but forego market share.
Tough decisions need to be taken by both the incumbents.
The only positive is that the government believes that the worst is over and the telecom industry will stabilize by early next year. The implementation of the National Telecom Policy and the Big Three’s ability to find new revenue streams such as streaming services will play a crucial role in reviving the ailing industry.
Also read
- Check out our stock recommendations
- L&T buyback: What do the experts say
- All you need to know about Alibaba-Reliance’s rumored partnership
- Should senior citizens invest in the stock market?
- Everything you need to know about the US stock’s longest bull run in history
- Our brokerage options
Click here to go back 