2019 could be a year of in­tense cor­po­rate bat­tles. The first of a four-part se­ries fo­cuses on the tele­com sec­tor


2019 could be the year of in­tense cor­po­rate bat­tles

across sec­tors, from tele­com to e-com­merce and en­ter­tain­ment to trans­porta­tion. In the first of a four-part se­ries, SURAJEET DAS­GUPTA analy­ses the strate­gies be­ing planned by the big boys in tele­com to stay ahead in the race.

2019 is likely to be the year when Bharti Air­tel and Voda­fone Idea, which have ruled the roost in In­dia’s mo­bile tele­phony in­dus­try for decades, will get dis­lodged from their thrones. Their place will be taken by dis­rup­tor, Re­liance Jio, which could be­come the largest mo­bile tele­com op­er­a­tor in the coun­try.

Ac­cord­ing to CLSA, Jio will cor­ner a 36 per cent rev­enue mar­ket share in FY20 mainly be­cause Voda­fone Idea will lose sub­scribers and dip to 27 per cent mar­ket share from its cur­rent share of 33 per cent. Jio will also over­take Air­tel, but the lat­ter is ex­pected to hold on to its sec­ond spot (31 per cent). How­ever, a more con­ser­va­tive es­ti­mate from bro­ker­age firm Bern­stein pre­dicts that Jio and Voda­fone Idea will be neck-and-neck in FY20, with the for­mer hit­ting 32 per cent of the mar­ket share — just one per­cent­age point lower than Voda­fone Idea. Cur­rently, Jio ac­counts for 27 per cent of the mar­ket share.

Though Jio does not di­vulge de­tails, those in the know say its tar­get is to grab 40 per cent of the rev­enue mar­ket share. Jio’s main in­stru­ment for at­tract­ing more and more cus­tomers into its net will con­tinue to be the 4G fea­ture phone launched last year. Of­fered to cus­tomers prac­ti­cally for free, the phone ac­counts for over 50 per cent of Jio’s in­cre­men­tal cus­tomers month-on-month.

In­dus­try watch­ers es­ti­mate that in 2019 Jio will get 60 mil­lion new sub­scribers through the fea­ture phone plan adopters. With an av­er­age rev­enue per user (ARPU) of ~99 per month (the de­vice comes with six months of un­lim­ited data and voice at that price), Jio will be able to gen­er­ate ad­di­tional rev­enues of ~6 bil­lion ev­ery month from 2019-end. Plus, it will get an­other 50 mil­lion cus­tomers who al­ready have smart­phones and they will come with an es­ti­mated ARPU of ~120 per month.

Air­tel is get­ting bat­tle-ready too. This year, it is fo­cus­ing on ex­pand­ing its 4G ca­pac­ity and im­prov­ing its net­work. It has some ag­gres­sive tar­gets: Se­cure the high­est net ad­di­tions of smart­phone sub­scribers month-on­month and get the high­est share of post­paid cus­tomers by wean­ing them away from Voda­fone Idea. Air­tel’s share of the post­paid sub­scribers pie cur­rently stands at 45 per cent.

Air­tel’s fo­cus on 4G is un­der­stand­able. It is es­ti­mated that as much as 98 per cent of In­dia’s 400 mil­lion smart­phone sub­scribers will en­able their phones with 4G by the end of 2019. At present Air­tel has only 20 per cent of its sub­scribers on 4G com­pared to 100 per cent in the case of Jio. Hence, to pre­vent its sub­scribers from shift­ing to Jio. Air­tel has to en­sure bet­ter and wider 4G ser­vices.

To do this, Air­tel is re­fram­ing its spec­trum from 2G to 4G in the 900 MHz band in 10 cir­cles, and also in the 2100 MHz band. In the re­main­ing cir­cles, it will lib­er­alise the ad­min­is­tered spec­trum. Air­tel is also dou­bling the num­ber of its fi­bre tow­ers to cater to the growth in the de­mand for high-speed data.

Voda­fone Idea, which lost over 7 mil­lion sub­scribers in Oc­to­ber 2018 alone, is try­ing to ac­cel­er­ate the cov­er­age of its 4G net­work so that it does not lose more cus­tomers. In fact, it aims to have 80 per cent 4G cov­er­age across the coun­try by 2020 as op­posed to the cur­rent 50 per cent. But that may not be enough to stop the ero­sion of its sub­scriber base be­cause ri­vals Jio and Air­tel are also try­ing to reach 90 per cent 4G cov­er­age by March 2019.

Voda­fone Idea is also hop­ing to un­der­take the in­te­gra­tion of its net­work much sooner than it had planned, so the syn­ergy sav­ings of around ~140 bil­lion an­nu­ally can be brought for­ward by two years (FY21).

For all three op­er­a­tors, the strate­gies for 2019 re­quire them to in­vest over $10 bil­lion to fi­nance their plans. As in­cum­bent op­er­a­tors have high gear­ing (debt) an­a­lysts es­ti­mate that ~550-600 bil­lion will be raised by them this year through mon­eti­sa­tion of as­sets and delever­ag­ing. Voda­fone Idea has al­ready an­nounced an eq­uity in­fu­sion of $3.5 bil­lion. It is ex­pected to sell its 11.5 per cent stake in In­dus Tow­ers and mon­e­tise its fi­bre as­sets too. Air­tel could sell its eq­uity stake in the Africa busi­ness, which is go­ing through an IPO this year, and also a part of its stake in Bharti In­fratel.

De­spite all the chal­lenges, there are two bright spots for the tel­cos. First, it is un­likely that there will be any sharp cuts in tar­iffs. (The last big cut took place in early 2018). Since Jio has been able to gar­ner in­cre­men­tal sub­scribers with lit­tle or no com­pe­ti­tion from its ri­vals, it does not feel the need to dis­count tar­iffs fur­ther. In fact, with more than half of smart­phone users al­ready in its kitty, a cut in tar­iffs would hit Jio’s bot­tom lines the most.

Sec­ond, it is ex­pected that ARPUs will go up and the fall­ing rev­enues of in­cum­bent op­er­a­tors will sta­bilise. The un­abated growth in 4G data, the wide­spread adop­tion of bun­dled plans which are 20-40 per cent higher than the blended ARPUs of in­cum­bent op­er­a­tors, and the new move by tel­cos to up their min­i­mum re-charge plan to ~35 (cur­rently, there are 200 mil­lion users who pay less than ~35 a month for recharge) will con­trib­ute to rais­ing ARPUs.

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