India Ratings and Research (Ind-Ra) has published the September 2018 edition of its credit news digest on India’s telecom sector. It highlights the trends in the telecom sector, with a focus on subscriber additions, subscriber market share, broadband subscribers, data usage, average revenue per user (ARPU) and profitability of the key incumbents.
The key highlights of the report include Ind-Ra’s views that Reliance Jio Infocomm Limited’s (RJio; ‘IND AAA’/Stable) has continued on its market share growth trajectory, with high ARPU levels and increased profitability. The growth has been supported by large data allowances at low prices, aggressively priced tariff plans and tie-ups with over the top (OTT) players
Steady Subscriber Growth: In August 2018, 9.8 million wireless subscribers were added in the telecom sector. RJio continued on its strong subscriber growth trajectory and added 12.2 million subscribers, led by the launch of 4G feature phones, while other telcos either reported flat subscriber growth or a decline. Aircel Cellular Limited has not reported subscriber numbers since April 2018. Most of its subscribers would have moved to other telcos due to the closure of its services.
RJio Gains Maximum Market Share: RJio’s wireless market share for August 2018 increased to 20.5% (July 2018: 19.6%). The increase is further characterised by the reduction in gross revenue of other incumbents. Meanwhile, RJio’s subscriber base grew 5.4% mom, while other players such as Bharat Sanchar Nigam Limited and Idea Cellular Limited’s subscriber base fell 0.6% and 1.6%, respectively. However, Vodafone India Limited and Idea Cellular now together hold 37.9% (July 2017: 33.8%) of the subscriber market share.
Sustained Decline in ARPU Impacting Key Players: Intense competition, RJio’s aggressive marketing strategy and aggressive tariff plan among the key incumbents have led to a decline in overall average revenue per user (ARPU) levels over the last two years. ARPU for key players came down to 100-105 during 1QFY19 from 140-150 in 4QFY17. RJio remains an outlier, with the highest ARPU level of 135 in 1QFY19. Furthermore, to keep a tap on the churn rate, key players are now focussing low tariff plans coupled with large data allowance at a low price, further putting downward pressure on ARPU levels. Also, telcos are focussing on providing content freebies to increase subscriber stickiness through OTT platforms.
Bharti’s EBITDA Margin Decline: RJio’s wireless EBITDA margin remained at 32% for the last two quarters (with minor blip), while Bharti Airtel Limited (Bharti) wireless margins tumbled around 440bp qoq for 2QFY19. Bharti has lost 12% of its annual revenue in India during the last six months, mostly to RJio. Also, Bharti’s margin declined to 31% in 1HFY19 from 38% in 1HFY18, attributable to increased competition and low ARPU realisation. Moreover, based on the attractive tariff and OTT partnership, RJio reported a low monthly churn of 0.66% compared to Bharti’s elevated churn levels of (4.1%).
Improving Teledensity: In August 2018, the wireless teledensity in India increased 68bp mom to 89.41%. Urban and rural wireless teledensity was 156.5% and 58.2% in August 2018, respectively. During the month, subscriber additions were 1.7 million in urban areas and 0.16 million in rural areas.