BATTLE OF THE TELCOS
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.