The telecom industry continues to add more subscribers. Rural connectivity has now reached above 50 per cent while urban connectivity is over 150 per cent. Subscribers crossed 936 million in 2015-16, a gain of 74 million over 862 million in 2014-15. In absolute terms, this was higher than the addition of 71 million in 2014-15, over the subscriber base of 791 million in 2013-14. However, the subscriber growth has inevitably slowed down in percentage terms due to the high base.
Revenues in 2015-16 rose to Rs 1.93 trillion, up 5.5 per cent from Rs 1.83 trillion in 2014-15. Of this, data contributed about 21 per cent. Growth has slowed down in terms of revenues as well, since revenues grew 11 per cent in 2014-15 over Rs 1.65 trillion in 2013-14. Most of the new subscribers now come from rural areas, while the urban markets are saturated and will see more churning.
The market is on a consolidation mode. Reliance Communications (RCOM) has merged with MTS and is in talks with Aircel for a possible merger. Spectrum trading and sharing has become more common. Airtel has bought out Videocon’s 1800 MHz in several circles; Reliance Jio Infocomm Limited (RJIL) and RCOM are cooperating in sharing the spectrum.
The total revenues are expected to cross Rs 3 trillion by 2020-21, with data contributing Rs 1.4 trillion. The demand drivers for the data market, such as e-commerce and video entertainment are in place. Competition in this segment should intensify with RJIL expected to launch commercial services very soon and it will reportedly offer plans with bundled handsets and data. Smartphone penetration, at around 250 million users, is already significantly higher than the uptake of 3G/4G. So, there could be a huge surge in broadband usage. By end-2017, India will be the second-largest smartphone market in the world and it should have 58 per cent smartphone penetration by 2020-21.
The upcoming spectrum auctions at the end of September would, in theory, enable operators to move from being spectrum starved to becoming more comfortable in terms of spectrum availability. However, the base prices are extremely high and if the base prices are met, the auctions would be worth over Rs 5.6 trillion. This is a huge sum in a market that is worth a little under Rs 2 trillion. It is more unlikely that operators, who already have plenty of debt on their balance sheets, will bid very selectively.
Only two operators, Idea and Bharti Airtel have declared their results for the quarter ended April-June 2016 at
the time of going to the press. Tower company Bharti Infratel has also declared its results for the same quarter. All three companies have moved to the new Indian Accounting Standard (Ind AS) in this fiscal, which has necessitated the restating of the previously announced results according to the new methods. This leads to significant differences, particularly in the treatment of joint venture (JV) companies.
In all three companies, a pattern of relatively slow growth is seen. The shift to data is also evident in the performance of the two operators. Idea has seen profits falling as it takes on more debt in an effort to grow faster.
Airtel
Bharti Airtel is the market leader with over 255 million subscribers in India and 357 million across the world. The Indian and South Asian operations contribute about 77 per cent of revenues and over 85 per cent of operating profits (EBITDA). The African operations continue to see deleveraging with tower assets being sold off across 11 nations and Airtel exiting operations in the two countries.
In the quarter ended June 2016, Airtel added 4.5 million customers in India, about the same as the number of subscriber additions in the corresponding period in 2015. Capex rose year on year by 23 per cent to Rs 49 billion in the quarter ended June 2016 from Rs 39 billion in the corresponding period in 2015.
The revenues were up by 8 per cent to Rs 255 billion from Rs 237 billion. Operating profits were up by 16 per cent to Rs 96 billion from Rs 82 billion. Free cash flow (EBITDA minus capex) also increaed to Rs 46.6 billion from Rs 42 billion. However, net profits fell by 31 per cent to Rs 14.6 billion from Rs 21 billion in the quarter ended June 2016. It should be noted that the quarter ended June 2014 had posted extraordinary gains of Rs 5.6 billion due to restatement of accounts under the new Ind AS. The net debt has increased significantly year on year, to Rs 834 billion from Rs 677 billion. Tax outgo has also risen to Rs 14 billion from Rs 4 billion.
Data contributed 23.7 per cent of mobile revenues in the first quarter of 2016, up from 19 per cent of revenues in the corresponding period in 2015. Meanwhile, the number of mobile broadband users grew to 36.5 million from 21.7 million. Sequentially, the addition in the quarter ended March 2016 is low since there were 35.5 million mobile broadband customers by March 2016. Data ARPU is up 12 per cent year on year, and it is 45 per cent higher than voice ARPU. The African operations have also been affected by currency devaluations, such as the depreciation of the Nigerian Naira which lost 42 per cent against the USD.
Margins were up 2.7 per cent at the operating level, and would have been higher, if adjustments were made for the African currency fluctuations. Depreciation was up in India and financing costs rose by Rs 19.4 billion, mainly due to higher interest incurred due to the cost of spectrum borrowing. In so far as one can draw a clear picture, given the necessary accounting reconciliations, growth has been slow in this quarter. However, there has been some growth in every key area. Debt remains an area of concern though it appears to be under control.
Bharti Infratel
The consolidated results of Bharti Infratel require massive restatement due to the impact of the new Ind AS on joint ventures. Under the new method, equity contributions are calculated for JVs rather than proportionate consolidations. Infratel has 42 per cent equity interest in Indus Towers.
Under Ind AS, the revenues grew marginally by 3 per cent to Rs 14.5 billion in the quarter ended June 2016 over Rs 14.1 billion during the corresponding quarter in the previous year. Operating profits increased by 7 per cent to Rs 6.9 billion from
Rs 6.44 billion. The net profits rose by 71 per cent to Rs 7.56 billion from Rs 4.42 billion. Capex actually declined marginally, to Rs 4.41 billion in this quarter from Rs 4.9 billion in the quarter ended 2015. The number of towers increased to 89,352 from 86, 397 while the sharing ratio went up to 2.2 from 2.1. One key factor in the rise of the net profits was that there were net gains in terms of financing. The company received net financing gains of Rs 1.76 billion as against net gains of Rs 132 million in the quarter ended June 2015. The revenue per customer per tower has slightly improved to Rs 35,039 in the quarter ended June 2016 from Rs 35,012 in the previous quarter ended March 2016. The company has managed to raise the rate card by 2.5 per cent for 2016-17 and that should have a positive impact going forward.
Idea Cellular
Idea Cellular has grown consistently and quickly for several years. It has expanded its subscriber base and gained both market and revenue share. The company now has about 183 million customers and its revenue market share is about 19.3 per cent. But it has also taken on a lot of debt and incurred high capex in its aggressive rollout that has affected profitability.
Idea adopted Ind AS in this quarter. The company saw revenues increase by 8 per cent to Rs 94.9 billion in the quarter ended June 2016 from Rs 87.9 billion during the corresponding period in the previous year. However, the results are hard to compare to the restated financials of the quarter ended June 2015 because of the full impact of the spectrum acquired for Rs 301 billion in March 2015 and renewal of nine licences in February 2014 (Rs 104 billion). Carrying forward of the unused data entitlements for customers has resulted in a negative impact of Rs 1.27 billion on the revenues.
Financing costs have increased to Rs 9.2 billion from Rs 3.2 billion, a rise of 185 per cent. Depreciation is up 36 per cent to Rs 19.2 billion in the quarter ended June 2016 as against Rs 14.1 billion in the same quarter in 2015. Operating profits stood at Rs 30.7 billion in the quarter ended June 2016, up 3 per cent over Rs 29.8 billion in the corresponding period last year. The net profits are down 74 per cent in the quarter ended June 2016, at Rs 2.2 billion as compared to Rs 8.5 billion in the corresponding period in 2015.
The company says that revenue growth will be slow at 4-5 per cent annually. The total voice minutes usage actually declined marginally in this quarter owing to the strategy of cutting back on promotional offers. However, data growth was stronger, due to the continuation of the volume-based strategy. The company added 5 million data customers. Data ARPU fell however, and hence, volume growth of 13 per cent sequentially resulted in data revenue growth of 4.1 per cent only. Data now contributes around 20.5 per cent to the total revenues.
Devangshu Datta
